More investors raised their holdings of longer-dated Treasuries after U.S. job growth missed forecasts in March, reducing expectations the Federal Reserve might raise interest rates in the first half of 2015, according to a survey released on Tuesday by J.P. Morgan Securities.
The share of investors who said their holdings of longer-dated U.S. government debt were greater than their holdings of portfolio benchmarks jumped to 25 percent from 13 percent a week earlier, J.P. Morgan Securities said.
By holding more longer-dated Treasuries, investors raise the duration, or interest rate, risk of their portfolios in anticipation of a market rally, which generally causes longer-dated bonds to generate larger gains than shorter-dated debt.
Conversely, longer-dated Treasuries would also raise the risk of greater losses than short-term bonds if bond prices fall.
On Friday, the Labor Department said U.S. employers added 192,000 workers last month, fewer than the 200,000 projected by economists polled by Reuters. There was speculation the March payroll figure could reach the 225,000 to 250,000 range on bets of a sharp rebound in hiring after a harsh winter that economists blamed for restraining job growth.
The mildly disappointing report spurred investors to move some money back to longer-dated Treasuries, sending their yields to one-week lows. The bond market had been defensive on worries the U.S. central bank might raise short-term interest rates not long after it ends its third round of quantitative easing later this year.
Last month, the Fed said there would be a "considerable time" between the end of QE3 and the beginning of rate hikes. Fed Chair Janet Yellen said later at a press conference that could mean six months, which some traders interpreted to mean such a move could happen in the first half of 2015, which was about six months earlier than they had thought.
In J.P. Morgan's survey of its Treasuries clients, 55 percent said they were "neutral" in their duration on U.S. government debt, or owned longer-dated Treasuries equal to their benchmarks, down from 64 percent last week.
Twenty percent said they were "short" in duration of Treasuries, or owning fewer longer-dated Treasuries than the benchmarks against which their portfolios are gauged, down from 23 percent last week.
The share of "longs" exceeded "shorts" by 5 percentage points, the most since November 18, J.P. Morgan said.
In early trading on Tuesday, benchmark 10-year Treasury yields edged up 1 basis point to 2.70 percent but were still down 9 basis points from Friday.
Among active clients, viewed as making speculative bets in Treasuries, 24 percent said they held more longer-dated Treasuries than their benchmarks, compared with 8 percent a week ago and none from two weeks earlier.
Thirty-eight percent of active investors said their longer-dated Treasuries holdings matched their benchmarks, down from 62 percent the prior week.
Thirty-eight percent of the active clients said they were short in duration versus their benchmarks, up from 30 percent last week.
J.P. Morgan surveys 40 to 60 of its Treasuries clients weekly, of which 60 percent are fund managers, 25 percent are speculative accounts, and 15 percent are central banks and sovereign wealth funds.
It asks 10 to 20 of its active clients each week about their Treasuries holdings, of which 70 percent are speculative accounts and the rest are money managers.