Hedge Funds Not Betting On Default

Oct 16 2013 | 2:13pm ET

The U.S. government is just hours away from a possible default on its debt, but hedge funds aren't biting.

Short interest in the Standard & Poor's 500 Index and its constituent stocks is at a six-year low, Markit reports, indicating that speculators do not expect the financial catastrophe that could follow a default. And the market set to be most affected—that in U.S. government bonds—isn't offering much of a premium for taking on the risk of a potential default.

"We did the math on the investment," the chief operating officer of a large hedge fund told The New York Times. "You could buy $2 billion of these bills, and you would only make $200,000."

The risk of default seems to be ebbing: A bipartisan deal was reached in the U.S. Senate today that is expected to pass quickly before the country hits its debt limit at midnight. The deal will reopen the government after more than two weeks and raise the debt ceiling until February—without any of the concessions sought by Republicans.

"Most people seem to be sitting and watching because going down the abyss seems too unimaginable," another hedge fund executive told the Times. Bank of America Merrill Lynch analyst MacNeil Curry concurs, telling the newspaper, "there's not a lot of evidence to say hedge funds are trying to short the market. It's more that people are stepping aside to watch it play out."


In Depth

Will Liquid Alts’ Performance Sustain Future Asset Flows?

Aug 25 2014 | 10:34am ET

Liquid alternative investment funds saw the highest percentage of capital inflows...

Lifestyle

Hedgies, Economists and Musicians Mingle At Milkin Mixers In Hamptons

Aug 25 2014 | 6:00am ET

Leave it to Michael Milken to bring some gravitas and sweat to the Hamptons -- along...

Guest Contributor

Looking Ahead: What’s In Store For Managed Futures?

Aug 22 2014 | 12:52pm ET

The last five years were phenomenal for investors in equity indices. Will the next...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

July/August 2014 Cover

The time was right

Commodities/Futures magazine launched at the precipice of a revolution in the futures industry—really a revolution in the idea of risk management—that would move it from a small niche industry to ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.