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Hedge funds tracking trends to profit from bearish US bond, yen trades – JPMorgan

September 6, 2023By Reuters

LONDON, Sept 6 – Hedge funds and funds using computer algorithms to trade market trends ended August with bearish positions in US government bonds and the yen, a JPMorgan client note showed, suggesting funds were poised to benefit from recent falls in those assets.

So-called commodity trading advisors (CTAs), which use computers to catch price movements, held strong net short positions in the yen and US and European government bonds as of Aug. 29. They also held a smaller net bearish position in Hong Kong stocks, the JPMorgan (JPM) note released late on Tuesday showed.

A short position is essentially a bet that an asset’s price will fall.

Since late August, the yen has fallen a further 1%, and hit a 10-month low at around 147.82 per dollar on Wednesday.

The 10-year US Treasury yield meanwhile has risen 15 basis points to 4.25%, extending recent price losses. Bond yields rise when prices fall.

The “general resilience of the US economy in the face of higher rates is making market participants more optimistic for a softer landing, and an increase in the issuance of government debt,” underpinned the rise in US yields, said MUFG senior currency analyst Lee Hardman.

A better-performing US economy means the Federal Reserve is likely to keep interest rates higher for longer – hurting government bonds.

That has weighed on the yen, which is sensitive to rising US yields. Japanese 10-year yields are well below 1% even after a recent tweak in Bank of Japan policy.

Trend following funds held net long positions in European credit, US investment grade, and high-yield bonds, as well as Japanese equities, said JPMorgan.

CTAs generally held long stock positions that declined over August. They mostly held on to Japanese stock positions, whereas long positions in European stocks more than halved by August 29. Long positions in Hong Kong stocks turned from a net long to net short, said the bank.

Systematic traders were divided on commodities, ending the month slightly net bullish on oil and turning flat to bearish on gold, the note said.

Brent crude oil on Tuesday closed above USD 90 a barrel for the first time since November.

(Reporting by Nell Mackenzie and Alun John; editing by Dhara Ranasinghe and Sharon Singleton)


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