Investors add bullish U.S. bond bets after dismal quarter: survey

NEW YORK (Reuters) - Investors increased their positions in longer-dated U.S. Treasuries holdings in the latest week after U.S. government bonds posted their worst quarter in 2-1/2 years, according to a survey released on Tuesday.

The increase in bullish bond positions also followed overall weak demand for $99 billion worth of short- and medium-term debt last week.

J.P. Morgan Securities, which conducted the survey, said 13 percent of its Treasuries clients on Monday were "long" in their duration on U.S. government debt, or they owned more longer-dated Treasuries than their benchmarks, up from 6 percent last week.

By holding more longer-dated Treasuries, investors add duration or interest rate risk to their portfolios in anticipation of a market rally, when longer-dated bonds generate higher returns than shorter-dated debt.

The latest long figure was still short of the five-month high of 19 percent set two weeks earlier.

Longer-dated Treasuries led a steep decline in price in the government debt sector in the second quarter due to fears the Federal Reserve might trim its current $85 billion of monthly purchases of Treasuries and mortgage-backed securities, known as QE3, if the economy were to strengthen further.

On June 19, Fed Chairman Bernanke at a press conference after a two-day meeting with other central bank policy makers drew the distinction between less stimulus due to the Fed's buying fewer bonds and the tightening of monetary policy through raising short-term interest rates - which he said will likely occur well after the Fed stops buying bonds.

Since Bernanke's press conference, a number of top Fed officials remarked the central bank is still a long way from tightening policy with unemployment remaining high and inflation staying soft.

In early Tuesday trading, benchmark 10-year Treasury yields held steady at 2.480 percent, which was below the 22-month high of 2.667 percent set last week, according to Reuters data. <US/>

In J.P. Morgan's latest survey, 19 percent of its Treasuries clients said they were "short" in duration of Treasuries, or owning fewer longer-dated Treasuries than their benchmarks, down from 24 percent a week earlier.

The share of "shorts" exceeded "longs" by 6 percentage points in the latest week, a third less than a week ago when net shorts stood at 18 points, J.P. Morgan said.

The share of investors who said they held Treasuries equal to their benchmarks slipped to 68 percent from 70 percent a week earlier.

Among active clients, who are viewed as making speculative bets in Treasuries, 70 percent said their longer-dated Treasuries holdings matched their benchmarks, up from 62 percent the prior week.

The survey showed 15 percent in active "longs," compared with none in the prior week.

Fifteen percent of active clients said they were short in duration versus their benchmarks, down from 38 percent a week earlier.

J.P. Morgan surveys 40 to 60 of its Treasuries clients weekly, of which 60 percent are fund managers, 25 percent are speculative accounts and 15 percent are central banks and sovereign wealth funds.

It asks 10 to 20 of its active clients each week about their Treasuries holdings, of which 70 percent are speculative accounts and the rest are money managers.

(Reporting by Richard Leong; Editing by Chris Reese)