 |
Hedge funds confounded by U.S. bond pricesPosted by Retirement on: 2005-10-05 08:34:47 in category:
Finance [ Print | Permalink / 0 Comment(s) ] LONDON Hedge funds are still betting on lower prices for U.S. Treasury bonds because they think rising U.S. interest rates will eventually outweigh the strong Asian demand for Treasury issues, according to hedge fund managers. Rising rates would normally mean lower bond prices and higher yields, but it has not happened to any significant degree this time, and many hedge funds, particularly in the United States, are having a tough time. In June 2004, when the U.S. Federal Reserve raised benchmark interest rates by a quarter of a percentage point from a historical low of 1 percent, yields on 10-year Treasury bonds jumped to around 4.8 percent. By September of last year, they were around 4.0 percent, and they are now about 4.35 percent. The Federal Reserve, meanwhile, has raised benchmark interest rates to 3.75 percent. "It's against all historical precedents," said Simon Smith, a strategist at Weavering Capital, a British hedge fund. "It's caught a lot of hedge funds off guard." Hedge funds that sold U.S. Treasury issues before the first Fed interest-rate increases - in March 2004, when yields were below 4 percent - have made money. Some waited too long and have been holding unprofitable positions through the series of Fed rate increases. Hedge funds have also been confounded by the flattening of the Treasury bond yield curve, which normally slopes upward. China's intervention in recent years to support the U.S. currency against the yuan has left it with a surfeit of dollars, which it has used to buy Treasury bonds. Analysts say Beijing has no interest in selling U.S. government bonds at the moment, because such a move could weaken the dollar against the yuan and damage its exports. Another Asia-related factor is the problem that some hedge funds have had with their computer-based models. These models use statistical analysis and assume that history repeats itself. Lack of funds transparency? Hedge funds do not pose a systemic risk to the world's financial system, but there is a need to look into the way in which they are sold to smaller investors, the Bank for International Settlement's general manager said on Wednesday, Reuters reported from Mumbai, India. There is increasing concern that there is a lack of transparency in hedge funds, which use a wider range of financial instruments than traditional funds but which also carry more risk. Malcolm Knight, general manager of BIS, said at a banking conference that there was a need to regulate global hedge funds, which make up the part of the financial market that is the least regulated globally. "All hedge funds have a trillion dollars in assets, and they have a heterogeneous group of investors, and they have different strategies," Knight said. In that regard, he said, they don't represent a "systemic risk." "At the same time," Knight said, "these are vehicles that are appropriate for investment by the sophisticated investor." He added that it was important that some concern be reflected, "to look into the marketing to smaller asset holders." Until recently, hedge funds had been available only to very wealthy investors, but since the lowering of minimum investment requirements they have been attracting smaller investors. BIS, a forum for the world's central bankers, this year called for more transparency in hedge funds, saying banks' exposure to them was rising. Homepage Other open community sites http://www.business-business.biz Please support our sponsors: To design your custom retirement plan. http://www.retirement-plan.us For planning IRA rollovers. http://www.ira-rollover.us Professional asset allocation and the wonders it can do. http://www.asset-allocation.us Professional money management- Nationally ranked performance. http://www.roth-ira.us Managers selected to fit your needs. http://www.money-managers.us |
|
Post new CommentThis site does not allow anonymous comments. Registered members can login to participate. Registration is free and takes only a few seconds |
|