Hedge Funds Net Short 10 Year Treasuries: Societe Generale Research ~ market folly

Monday, April 12, 2010

Hedge Funds Net Short 10 Year Treasuries: Societe Generale Research

Societe Generale is out with their monthly hedge fund watch and we thought we'd highlight some of the takeaways of what they're seeing. Their research indicates that on a whole, hedge funds are very long the US dollar against the euro, UK pound sterling, and Japanese yen. Additionally, they are seeing funds long the Nasdaq and short bonds. This comes after we just recently saw Bank of America's research that hedgies were aggressively selling the yen.

One of the main talking points as of late has been that hedge funds have increased net shorts against 10 year treasuries. Curve steepeners have been a favorite trade of alternative investment managers and we've covered in the past how hedge fund Prologue Capital likes curve steepeners and how you can replicate legendary fund manager Julian Robertson's constant maturity swap play. As we just covered earlier this morning in Byron Wien's ten surprises for 2010, we saw that The Blackstone Group's Senior Managing Director sees yields on the 10 year rising to 5.5% or above. Below is a chart illustrating just how much short exposure hedgies have right now in long-term bonds:

(click to enlarge)

In currencies, hedgies continued to aggressively sell the euro and again this falls right in line with previous research we posted up that concluded that hedgies were re-shorting the euro. SocGen opines that hedgies are now net short 80,000 contracts. Turning to energy, we see that funds are long commodities and are very long oil, a commodity that has been looking to breakout. Hedge funds are also apparently still bullish on gold, despite reducing their net long positions it appears. You can view all of the hedge fund research on gold we've covered in the past as there's a plethora of resources.

Embedded below is Societe Generale's monthly hedge fund watch report in its entirety where you can examine their exposure levels across various asset classes:

You can directly download a .pdf here.

So, hedge funds in general seem to really be gravitating (i.e. crowding) three main trades right now: shorting long-term treasuries, shorting the euro, and going long oil. To see what other movements big hedge funds are making, head to our post on how they aggressively sold the Japanese yen and an in-depth look at how they had previously been re-shorting the euro. And for more market research specifically from Societe Generale, we've posted up their thoughts on gold as an insurance policy as well.

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