Fed Report Focuses On Hedge Funds' Oct. 15 Actions

Dec 31 2014 | 9:21am ET

Hedge funds made large adjustments to their bets on U.S. interest rates on October 15, a day of that saw a sudden plunge in Treasury yields, according to a survey from the Federal Reserve released Tuesday.

The Fed polls senior credit officers at major securities dealers each quarter. This most recent survey included questions specifically about trading on October 15.

That day, about $445 billion worth of Treasury bonds changed hands by 10 a.m., the highest volume since the same time on May 2 and compared to the one-month average of $144 billion on the 10 a.m. point, Adrian Miller, director of fixed-income strategies at GMP Securities, told the Wall Street Journal at the time.

According to the Fed survey, hedge funds—particularly macro strategies—made relatively large adjustments to their bets between 8:30 a.m. and 10 a.m. that morning.

“For most other client types, dealers indicated that there was little or no change” in net positioning, the Fed said. The survey was conducted during the second half of November.

Although there were a number of factors behind investors' flight to the safety of Treasuries that day—including Ebola, unrest in the Middle East and concerns about global growth—market participants said the move on October 15 was larger than would have been expected based on these events, suggesting other factors were at play. The speed and volume of the market move seemed to point the finger at computer-driven trading.

The Fed survey also found that on October 15 and in the days that followed, some dealers increased the amount of collateral required to backstop contracts referencing short-term U.S. Treasury rates.


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