By Summer Zhen
HONG KONG, March 16 (Reuters) - Trend-following hedge
funds have been badly wrong-footed in a week of wild gyrations
in the bond market and are selling stocks to make up for souring
bets on higher interest rates, banks say.
Commodity trading advisers (CTAs) - funds that try to profit
by buying or selling when there is a clear direction in markets
- slumped 4.3% in the three days to Monday, according to
analysis from UBS.
The SG CTA index , which tracks the 20 largest
such managers, dropped 4% on Monday, more than it had previously
on a single day. Calculated since 2000 by Societe Generale, the
index covers CTA managers including AQR Capital Management,
Winton Capital Management and Graham Capital Management.
The fall in CTA fund values has been triggered by extreme
volatility in interest rates since the collapse of Silicon
Valley Bank last week.
"Most of the pain came from bonds and equities although all
asset classes contributed negatively," UBS analysts said in a
report on CTAs.
"As a response, CTAs have significantly reduced their long
positions in equities, selling $25-$30 billion worth of stocks
since the announcement of the SVB collapse."
Concerns over the stability of Credit Suisse on Wednesday
set off another round of twists and turns in the bond market and
sent the ICE BofA MOVE index of bond volatility to its
highest level since the 2008 financial crisis.
"It means financial conditions are very tight now ... and
intra-day price actions are going to be very volatile too,"
Gilbert Wong, head of Asia quantitative research at Morgan
Stanley, said in a note advising his clients to be careful.
He suggested they should lower gross and net exposures and
be prepared for a highly volatile market in near term.
CTA strategies were successful last year. They thrived while
markets kept pushing interest rate expectations higher and
sending the dollar on a long rally.
The SG CTA index had its best year on record in 2022.
Many CTAs had positioned for rate expectations to continue
rising because of the stickiness of high inflation.
(Reporting by Summer Zhen; Editing by Bradley Perrett)
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.