Bank of America sees bond investors holding profitable short positions

Investing.com -- Active benchmark funds are keeping short positions on duration risk while increasing allocations to mortgage-backed securities and investment grade bonds in recent weeks, according to Bank of America.

Data from the Commodity Futures Trading Commission shows asset managers added to short positions last week. Bank of America's systematic strategies team noted that slower trend followers are adding to short positions as well.

Short positions remain in profitable territory while long positions, especially those further out on the yield curve, face potential closures, the bank said.

Foreign official investors may be purchasing during price declines, but other investors are staying on the sidelines. Fund inflows increased last week but remain lighter at the front end of the curve.

Bank holdings of U.S. Treasuries are up for the year but have declined by approximately $30 billion since their peak at the end of March. Milliman data indicates limited derisking activity even from well-funded pension plans.

Bank of America's futures positioning proxy indicates a selloff bias across most tenors. Short positions maintain profitability across the curve, while long positions are mostly unprofitable except for 10-year notes and are concentrated at the back end of the curve.

The bank's systematic strategies team noted that longer-term trend followers are likely continuing to add U.S. Treasury short positions.

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