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

Why Ponzi Schemes Work: An In-Depth Look At The Allen Stanford Fraud

Dec 21 2014 | 10:30am ET

Texan Allen Stanford first appeared on the radars of financial regulators in 1997...

Lifestyle

Hedgie Funds US Squash Program

Dec 24 2014 | 8:46am ET

Squash, anyone?

Guest Contributor

EidoSearch’s Top Three Market Projections For 2015

Dec 23 2014 | 4:03am ET

It is that time of year again when prognosticators make their big market calls for...

 

Sponsored Content

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

December 2014 Cover

Futures 2014 person of the year

Jeff Sprecher was simply looking for a platform to trade energies when launching ICE 14 years ago but it has grown to reach the pinnacle of both the listed futures and equities world.

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.