Hedge funds active in U.S. Treasury market

Date: Tuesday, September 21, 2004

Make record US$33 billion of U.S. Treasuries since last April- By James Langton. IE- Hedge funds are replacing central bankers as big players in the U.S. Treasury market, suggesting that the sector could become more volatile, says National Bank Financial. NBF says in a report that data released last Thursday by the U.S. Treasury department shows foreign holdings of U.S. treasuries increasing to US$1.8 trillion in July. Unlike previous months, however, most of the accumulation in July was from the private sector, as purchases of foreign central banks have levelled off recently following a Bank of Japan-led buying frenzy earlier this year. “So who's picking up the slack?” NBF asks. It finds that answer in Caribbean banking centers, largely representing hedge funds, have been the most active in recent months, accumulating a record US$33 billion of U.S. Treasuries since last April. As of July, Caribbean banking centres had jumped ahead of Korea to become the fourth largest holders of U.S. Treasuries at US$90.9 billion, NBF says. “This development could add volatility to the bond market in the coming months because hedge funds are certainly not as predictable as foreign central banks when it comes to accumulation of U.S. Treasuries,” it suggests.