Hedge Funds Nailed Treasuries Rout With $100 Billion in Sales

(Bloomberg) -- Hedge funds have been a major player in this year's Treasury selloff, offloading more than $100 billion of the securities since the start of January, according to holdings data.

The world's biggest net sales of U.S. government debt so far in 2021 has been in the financial center of the Cayman Islands, well known as a domicile for leveraged accounts. Investors there dumped $62 billion of US. sovereign bonds in February, after selling $49 billion the previous month, Treasury Department data show.

The January and February selling flow also appears to offer some clues about recent price action. Treasuries rallied on Thursday despite stronger-than-expected U.S. economic data, with many participants pointing to short-covering demand as the reason.

“Hedge funds overall were probably keenly involved in the rates move, but I don't think they were alone,” said Richard Kelly, head of global strategy at Toronto-Dominion Bank. “The market broadly built up some decent short positions in a relatively short time.”

U.S. 10-year yields have jumped more than 60 basis points since the end of December to trade at 1.58% on Friday. Among the catalysts for the bearish tilt were Democratic victories in the Georgia Senate run-off race that paved the way for another round of stimulus spending, and the rollout of coronavirus vaccines. Rising yields then prompted a return of convexity-type hedging flows.

Hedge Fund Research Inc.'s Macro Total Index, which tracks discretionary macro managers among others, climbed 0.2% in January and clocked a 2.8% gain in February.

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