Opalesque Industry Updates - Hedge funds are quickly regaining some of the clout they lost in U.S. fixed-income markets during the market meltdown.|
The results of Greenwich Associates’ 2010 U.S. Fixed-Income Investors Study reveal that while overall U.S. fixed-income trading volume declined from 2009 to 2010, hedge fund trading volumes jumped some 36% among a matched sample of institutions. Such growth demonstrates that although hedge funds are far from the dominant force they were in 2006–2007, they remain key players in U.S. fixed-income markets.
Hedge Funds Focusing on More Liquid Products
The most obvious example of this shift can be seen in U.S. Treasuries. Looking at a matched sample of investors, hedge fund trading volume in government bonds increased by approximately 73% from 2009 to 2010. In 2009, hedge funds generated only about 3% of trading volume in government bonds; in 2010 that share jumped to approximately 20%. Although hedge funds still make up only a small part of the market for agency securities, their trading volume in this product increased more than 60% from year-to-year.
Hedge funds increased their share of total investment-grade credit trading volume to 26% in 2010 from 16% in 2009. “Hedge funds now account for about 42% of total trading volume generated in investment-grade credit default swaps and index products,” says Greenwich Associates consultant Frank Feenstra. Hedge funds also generate about 46% of total trading volume in high-yield credit, including 37% in cash bonds and 63% in CDS and index products.
Large Presence in Out-of-Favor Products