fund managers dump treasuries turn bearish

Bank of America Merril Lynch (BAML) analysts have just put out a note regarding an extremely insightful survey which they conducted. The result of survey shows that many investors have been dumping US treasuries over the past several weeks. As per the BAML analysts:

The survey was conducted between 01 February 2013 and 06 February 2013. A total of 74 Fund Managers responded to the survey. Responses came from the U.K., Continental Europe, Japan, and the U.S.

And the results of the survey summarized by the analysts:

66% of investors responding are no longer long bonds, and a further 11% are thinking of selling. Last month we highlighted investors were generally not positioned for their positive outlook on the US economy. This has corrected, with investors underweight the USD for the first time since 2010 and with the most aggressive duration underweight since 2011.

The BAML analysts state further:

This suggests the sell off in Treasuries may be running out of steam, and makes us more comfortable with our constructive view on US fixed income in particular. Interestingly, the bearish view on rates is not driven by the expectation of a rotation out of fixed income into equities; only 37% of fixed income investors believe the Great Rotation is under way.

Neutral euro for first time since 2010 

Investors hold a neutral Euro exposure for the first time since 2010, but a downside bias remains. 60% of investors responding believe the EUR will weaken over a three-month period, driven by disappointing growth and rising solvency concerns. At the same time, 68% of investors are neutral to overweight the periphery, the same proportion as in December. The analysts state “this suggests investors are trading momentum, not their fundamental convictions.” We have noted a similar shift in sentiment regarding the Euro based on BAML’s hedge fund monitor.

Hedge funds euro positions

Finally, the report notes that shorting the Japanese Yen is still a very popular trade. The analysts state that “selling Japanese Yen seems to remain the most favored expression of this view. Although underweight positions have declined, they remain the most pronounced underweight, and investors’ views on the currency are even more bearish.” We have noted in the past that short Japanese Yen is one of the most crowded hedge fund trades. The data seems to confirm this thesis (at least in part).

Fund managers are very bearish on Japanese Yen

H/T  Jesus