What are hedge funds running for now?

Filed in archive Hedgetalk on August 29, 2006

Hedge funds are showing recently a growing interest for bonds. Bloomberg.com submits details of the commitment report in the article "Hedge Funds Fuel Treasury Rally With Record Bet on 10-Year Debt".

"Investors are not only betting the Fed is done raising its target rate for overnight loans between banks but that the next step will be to reduce interest rates after the central bank left its target rate at 5.25 percent on Aug. 8."

The large amounts held in log speculative positions indicate that investors massively open bets on slowing economic activity and less inflation, which will probably bring the Fed to ease interest rates.

On the background of the recent sings of weakening economic and consumer confidence, bonds appear to be once again a hot investing "story", at least for the (few) months ahead. In such environment equities are perceived as riskier and the old "in-markets" like energy, commodities and emerging markets seem to become less attractive. In the recent comment "Hedge Fund Investors Warned of Energy Risks" the risk exposure of the global Hedge Funds industry to energy-related investments is seen in a critical light.

Supposedly many fund managers get aware of the warning signs and now move on to new ideas.