Mount Lucas Management, a $1.7bn hedge fund based in Pennsylvania, has recently liquidated its long US Treasury positions, signalling a cautious stance on expectations of future Federal Reserve rate cuts, according to a report by Bloomberg.
The firm, which focuses on discretionary macro strategies, took profits last week by selling off bonds with maturities between two and five years that it had accumulated over the past few months.
David Aspell, co-chief investment officer and partner, commented: “There’s no more juice left to squeeze from that long bond trade for us.”
Currently, US Treasuries are relatively stable, with the yield on the two-year note hovering just above 4%. Investors are awaiting a critical report on US producer prices, expected to show a slowdown to an annual rate of 2.3% for July, with consumer prices also on the horizon.
Mount Lucas, founded in 1986 and now fully employee-owned after Goldman Sachs Group Inc sold its minority stake in 2016, employs a blend of discretionary and trend-following strategies. Aspell, who joined the firm in 2011 from Man Group, noted that their macro fund has gained 5.5% this quarter through 9 August, outpacing a 3.7% return from a Bloomberg index of US Treasuries.
Treasuries had seen gains earlier this month, driven by a weaker July jobs report, which led traders to speculate on potential Federal Reserve easing of up to 200 basis points by May of next year, although expectations have since moderated to around 170 basis points.
Despite these developments, Aspell remains sceptical about the Fed easing policy to such an extent and decided to exit Treasury positions. “We’re moving to a point where it will be quite hard to outdo the market,” he said.
