Wednesday, August 11, 2010

Jones: Hedge funds develop taste for US Treasury bonds

Hedge fund managers now account for one-fifth of all trading volume in the $10,000bn US Treasury bond market, up from just 3 per cent in 2009, according to a comprehensive investor survey by consultancy Greenwich Associates.

Trading in the once-sedate Treasuries market has spiked as volatility has increased and fund managers have scented opportunities to make large amounts of money from the uptick in government bond issuance and market anomalies caused by quantitative easing.

As well as bond trading “global macro” funds such as Brevan Howard, Tudor Investment Corporation and Moore Capital, which aim to profit from swings in global economic balances, the Treasuries market has seen an increase in fixed-income arbitrageurs.

Pricing inefficiencies have made the government bond market attractive for relative value trading, in which arbitrageurs bet that “anomalous” prices caused by an issuance glut will correct over time, according to traders...