Hedge fund managers are the most bearish on 10-year U.S. Treasurys in 16 months, according to a new survey, as they position for a winding down of the Federal Reserve's bond buying program.
Of the managers polled, 48.3 percent were negative in their outlook for 10-year debt in July, up 6 percentage points from the previous month, according to a monthly survey by TrimTabs/BarclayHedge published late Wednesday. The survey, which was conducted July 16 and July 19, polled 95 fund managers.
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Earlier this month, 10-year Treasury yields, which move in the opposite direction to prices, spiked to 2.73 percent - the highest since August 2011 - after the country's June employment report showed signs of solid improvement in the labor market, raising expectations for Fed tapering. Yields have since edged lower, currently trading around 2.58 percent.
The survey findings, however, contradict a recent Bank of America Merrill Lynch report that said hedge funds have been "aggressively" buying 10-year U.S. Treasurys in the week to July 22.
David Forrester, foreign exchange strategist at Macquarie, said it is possible that investors piled into the U.S. bonds last week in anticipation that Fed Chairman Ben Bernanke would be dovish in his testimony on July 17, after saying the U.S. needed a "highly accommodative" monetary policy a week earlier.
"However, the testimony was less dovish than expected, which could explain why hedge fund managers are bearish in their outlook for U.S. 10-year Treasurys," Forrester said.
Bullish on US Stocks
In contrast, investors were much more positive in their outlook for stocks. The majority, or 67.4 percent, of fund managers predict equities will be the best performing asset class in the U.S. over the next six months, outnumbering those who believe precious metals (7.4 percent), short-term bonds (15.8 percent) and long-term bonds (9.5 percent) will outperform.