Leverage Increases For First Time In '12

Oct 8 2012 | 12:09pm ET

Hedge funds are levering up for the first time this year.

Margin debt on the New York Stock Exchange rose 5.4% year-on-year in August, according to Bank of America Merrill Lynch. That benchmark for leverage has dropped for nine straight months.

"Leverage can be used as a sentiment indicator as it is related to investor confidence," BofA, which tracks the use of leverage among investors, including hedge funds, said. "It tends to be correlated to the direction of the equity market—investors are likely to gain confidence and add leverage when the equity market is going up and vice-versa. The current reading shows that investors are becoming more confident in the market, which supports further upside."

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