Hedge funds and other speculators are lining up against the Fed on new debt, a signal that the government-debt market is hugely overbought and set to stumble badly, according to new data from TrimTabs Investment Research.
TrimTabs told its clients that investors have been moving into bond mutual funds and exchange-traded funds (ETFs) while leaving stock funds. Investors put a combined $708.8 billion into bond vehicles since the beginning of 2009 while taking nearly $100 billion out of stock funds and ETFs.
That’s too many people on the same side of the boat, experts warn.
”We now spot what we think might be telling cracks in the bond market’s foundation,” wrote TrimTabs analyst Vincent Deluard, reported Forbes.com.
Mutual-fund investors were selling their long-term Treasurys to buy TIPS (Treasury Inflation-Protected Securities), Deluard wrote.
Meanwhile, speculators are building positions in expectation of a flight from U.S. debt.
“Bearish 10-year Treasury sentiment soared in our November survey of hedge-fund managers, and spec traders have large short positions on Treasury futures on both wings of the curve,” wrote Deluard.
While Federal Reserve Chairman Ben Bernanke is going on television to promise even more quantitative easing if necessary, many small investors are jumping ship now to get into stocks as the recovery gains traction at last.
The tax-cut deal now working through Congress may have been the final trigger.
The big move by ordinary investors out of bonds has been a while coming, but ultimately it was a predictable trend, say experts.
"Investors who got out of stocks and went into bonds for safety and security thought they had it made in the shade," Marilyn Cohen, president of Envision Capital Management, a West Los Angeles firm specializing in bonds for small investors, told the LA Times.
"Well, they did for two years, but it's over. A lot of retail investors who look at their bond funds have got to be freaked out," she said.
© 2017 Newsmax Finance. All rights reserved.