Struggling hedge funds cling to dollar, U.S. yield curve bets: McGeever

LONDON (Reuters) – Hedge funds have struggled badly in 2018, but would be faring far worse were they not on the right side of two of the most reliable trades of the year: a flattening U.S. yield curve and a stronger dollar.

FILE PHOTO: United States one dollar bills are seen on a light table at the Bureau of Engraving and Printing in Washington November 14, 2014. REUTERS/Gary Cameron/File Photo

Both trends remain in place, and as the latest data show, speculators look like holding onto them for the rest of the year.

Funds increased their net long dollar position against a range of developed and emerging-market currencies by nearly $2 billion to $32.09 billion in the week to Dec. 4, according to Commodity Futures Trading Commission figures. That’s the biggest cumulative bet on a rising dollar in three years.

They also increased their net short position in two-year Treasuries by the second largest amount this year and upped their short position in 10-year bonds by only a fraction, effectively a bet that the gap between two- and 10-year yields will narrow.

The dollar is up 5 percent so far this year — up 10 percent from the low in February — while the 2s/10s yield curve is the flattest in over a decade, coming within 10 basis points of recession-warning inversion last week.

(For a graphic on ‘U.S. yield curve’ click tmsnrt.rs/2zVNhqO)

That may suggest these trades are stretched and due for a bout of year-end profit-taking. Perhaps, but they have been among the few shafts of light in a

Keep reading this article on Reuters Personal Finance.