CHART OF THE DAY: The Fed Has Finally Bullied Hedge Funds Into Buying Government Bonds

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Now look at what the Fed has done. Hedge funds have been forced to reverse their year-to-date money-losing bet against U.S. government bonds. After watching treasury yields march ever lower this year, they’ve capitulated.

According to SocGen Cross Asset Research, hedge funds as a group have recently become net-buyers of 10-year U.S. Treasury’s.

This marks a key inflection point after at least a year of net-selling.

Also note the timing of this shift. It starts right ahead of when the Federal Reserve announced that quantitative easing was back on the table. Nobody wants to play chicken with Ben Bernanke, and you can’t blame them since, as Deutsche Bank says, fresh QE could spark a major government bond rally.

(Via Societe General, SG Hedge Fund Watch, 29 September 2010)

chart of the day, hedge fund net positions on treasury notes, sept 2010

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