Tags: Hedge Funds | Interest Rates | Market Turmoil | Federal Reserve

Hedge Fund Bond-Buying Drove Market Unrest: Fed Survey

Wednesday, 31 Dec 2014 08:26 AM

Hedge funds moved quickly to increase their long exposure to U.S. interest rates on the morning of Oct. 15, the day disappointing economic data sent stocks tumbling and bond prices higher, a Federal Reserve survey showed.

Macro-oriented and other hedge funds lengthened their net positions between 8:30 a.m. and 10 a.m. that day, according to about two-thirds of respondents to the Fed’s December Senior Credit Officer Opinion Survey, released today in Washington.

About $672 billion was wiped from global shares on Oct. 15 and average bond yields around the world fell after reports showed bigger-than-projected drop in U.S. retail sales. The Standard & Poor’s 500 Index of U.S. stocks plunged more than 3 percent.

The quarterly survey, which added an extra set of questions focused on the Oct. 15 events, found hedge funds had little or no change in their net positions in U.S. interest rates in the two weeks preceding that date.

During that same period, the net positions of mutual funds and separately managed accounts — typically run for institutions and wealthy individuals — got shorter, the Fed said.

The survey polled 22 institutions that account for almost all dealer financing of dollar-denominated securities provided to nondealers and are the most active intermediaries in OTC derivatives markets.

Mutual Funds

Dealers reported that other types of clients, including mutual funds, pension plans and endowments, made little or no change to interest-rate positions on the morning of Oct. 15.

Some dealers made their own adjustments, increasing margin requirements for contracts on short-term U.S. interest rates for several classes of clients, including mutual funds, pension plans, endowments and separately managed accounts. Most dealers said margin requirements weren’t changed for hedge funds and for insurance companies.

The survey, conducted Nov. 18 to Dec. 1, found leverage by counterparties was generally unchanged.

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Hedge funds moved quickly to increase their long exposure to U.S. interest rates on the morning of Oct. 15, the day disappointing economic data sent stocks tumbling and bond prices higher, a Federal Reserve survey showed.
Hedge Funds, Interest Rates, Market Turmoil, Federal Reserve
297
2014-26-31
Wednesday, 31 Dec 2014 08:26 AM
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