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Laxman Pai, Opalesque Asia: CTAs, overall, fully neutralized their short bond positions over the month of November, said Lyxor in its Weekly Brief. This was a fast reshuffling, though executed with diverging regional positioning.
The report from Lyxor's Cross Asset Research team, focused on hedge fund flows, performance and positioning said that CTAs cut about a quarter of their U.S. bond shorts, but they built up long bond positions both in Europe and Japan.
"We note that CTAs remain substantially long dollar against EUR, JPY, CHF, and GBP. They are also short equities, especially in Europe and Japan. They fully cut their energy positions," it said.
The confirmation of a changing Fed's tone and hopes for a truce in the U.S. trade standoff both supported risky assets this week.
Rates have been trending down since mid-November, in sync with a weakening pulse of global growth and escalating political risks in China and Europe. This week, Fed chair Powell shifted his stance, with rates considered being a "long way" from the neutral rate in October to "just below" from now on.
The FOMC minutes were also dovish. While pointing to a hike in December, they suggest the Fed would be increasingly data dependent. With govies yield down 25 bps since mid-November, markets are now expecting only two rate hikes in 2019, in addition to that of December.
The change of tone at the Fed is also being factored in hedge funds portfolios.
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