“It’s very difficult for you to have a bond market crisis when ultimately the central bank can print money,” Suhail Shaikh, Chief Investment Officer at Fulcrum Asset Management LLP, said in a telephone interview on March 13. The $1.6 billion computer-driven hedge fund group was founded by former British Broadcasting Corp. Chairman Gavyn Davies.
Bullish Tilt
The bullish tilt doesn’t signal that yields are poised to spiral higher, one common outcome when bets are at an extreme, according to James Lee, the head of U.S. derivatives strategy at Royal Bank of Scotland in Stamford, Connecticut.
A broader CFTC gauge that tracks all non-commercial account holdings of interest-rate contracts shows the bets are more balanced. Measured in 10-year equivalents, the market is bullish, or long, in all rate contracts by $3.86 billion as of March 12, down from the record of $66.8 billion reached in September.
“There are other measures of overall speculative positions that aren’t stretched, which signals there is still room for yields to fall,” Lee said in a March 11 interview.
Investors have placed $44 billion with bond managers this year, more than double the almost $20 billion that went to U.S. stock funds, according to the Investment Company Institute. The Fed’s most recent flow of funds data shows the household sector, which includes U.S. hedge funds, private equity funds and personal trusts, increasing Treasury holdings to $1.036 trillion in December from $648 billion a year earlier.
“These leveraged accounts are very suspect on the recovery,” David Keeble, head of fixed-income strategy at Credit Agricole Corporate & Investment Bank in New York, a unit of France’s third largest bank, said in a telephone interview March 8. “And it has been taking a lot to change their minds.”