Hedge funds are increasing their short bets on US rates as the flow of economic data improved and inflation figures edged higher, according to Philippe Ferreira, head of research at Lyxor’s managed account platform.
Moderate price pressures materialised recently (PCE deflator at 1.6 per cent yoy in April), though the inflation rate remains below the two per cent target of the Fed. This triggered a rise in 10y Treasury yields last week which caused some losses on CTAs.
In this environment, global macro funds have cut quite aggressively their net short positioning on US rates and credit, from -9 per cent of net assets at the end of April to -36 per cent currently.
With regards to recent performance, equity-oriented strategies (event driven, L/S equity) continue to rebound while L/S credit and fixed income arbitrage remain resilient in spite of higher bond yields. The strongest performance last week was registered by merger arbitrage funds. The pipeline of corporate events, including mergers and acquisitions, continues to increase with high volumes of transactions announced recently.
Positioning on commodities has evolved. Some global macro and CTAs have increased their long positioning on energy, associated probably to the ‘mini-stimulus’ package announced by Chinese authorities. The overall positioning of global macro funds on energy is moderate, but increasing from 1.8 per cent of net assets in early May to 3.5 per cent to date. Meanwhile, CTAs have considerably sizeable positions that increased from 20 per cent of NAV to 25 per cent during the same period.
