Hedge Funds Reduce Bets On Rising Interest Rate Volatility: Fed Survey

MarketWatch Pulse

Hedge funds appear to have pulled back from making bets on rising interest-rate volatility since the beginning of the year, according to a new survey released by the Federal Reserve on Thursday. One-fourth of dealers who answered the question on the Fed survey reported that hedge-fund clients have decreased positions that would benefit from rising volatility of short-term interest rates since January, the central bank said. About one-fifth of dealers reported that these funds have also decreased positions that would benefit from rising volatility of long-term interest rates. Hedge fund positions that would benefit from declining interest rate volatility as well as equity market volatility positions were reported to have remained basically unchanged overall. Mutual funds, pension plans and the insurance industry positions that depend on fluctuation in the volatility of interest rates and equity prices remained basically unchanged, the survey found. The Fed survey covers senior credit officers at 22 financial institutions most active in over the over-the-counter derivatives. The survey was conducted between Aug. 20 and Sept. 2.

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