HFs Rebound in US Fixed-Income Trading

(August 13. 2010) — Hedge fund managers are rebounding in US fixed-income markets, Greenwich Associates reports.

The study shows that hedge fund trading volume in US government bonds has boomed in the past year. The results show an estimated 36% increase in trading volume in US fixed-income markets between April 30, 2009, and April 30, 2010.

Over the last year, hedge funds have been focusing their attention on more liquid products, highlighting a change in investment strategy. According to Greenwich Associates, the most obvious example of this shift is in US Treasuries — hedge fund trading volume in government bonds increased by approximately 73% from 2009 to 2010. While hedge funds generated about 3% of trading in this market in 2009, that share jumped to roughly 20% in 2010, Greenwich Associates said.

The growth illustrates that hedge funds remain key players in US fixed-income markets despite the fact they are far from the dominant force they were in 2006–2007, the survey stated. At their pre-crisis peak in April 30, 2007, hedge funds generated 29% of US fixed-income trading volume, a percentage that dropped to 12% by April 30, 2009, rebounding to 19% by April 30, 2010. The financial crisis has motivated investors to push to be allowed to withdraw money more easily during periods of market stress. Consequently, funds may have to keep more securities that can be sold quickly, with Treasurys and agencies being among the most liquid.