By GERTRUDE CHAVEZ-DREYFUSS
NEW YORK- Bond investors are bracing for a US economic downturn, as they pare back risky exposures, while many are extending duration in their fixed-income portfolios, taking in to account a Federal Reserve that is in no rush to resume cutting interest rates.
In the run-up to this week’s two-day Federal Open Market Committee meeting, investors have been extending duration. That entails buying longer-dated assets in anticipation of a further decline in yields and suggests that the bond market is positioning for a deeper than anticipated rate-cutting cycle. Investors have been lengthening duration for the last month at least, market participants said.
J.P. Morgan’s latest Treasury Client Survey showed bond investors having the largest net-long position on Treasuries since the autumn of 2010. The extreme overbought situation could be a contrarian indicator, however, suggesting a possible technical bounce for bond yields in the near term.
