2007-01-24 08:44:00 · 4 answers · asked by Atlas 6 in Social Science ➔ Economics
Hedge funds will buy (and sell) Treasurys in order to speculate on a drop in interest rates (or a rise) like the Fed lowering short-term rates. If rates go down, the Treasury prices will appreciate thus producing a short-term gain. This is akin to buying (or shorting) a stock that you believe will go up (or down) in price.
In addition, hedge funds can increase the potential returns from a trade through the use of leverage. This is typically done through repurchase agreements and high-quality instruments like Treasurys get very favorable lending rates and have low margin requirements (this means the fund can borrow even more money to further inflate the returns of the trade).
Hedge funds may also buy and sell combinations of different maturity Treasurys to speculate on changes in relative interest rates. These types of trades are sometimes called butterfly trades, or bullet vs. barbell trades. These trades may be more attractive when a fund doesn't have an absolute view on the direction of interest rates, but may have a view about relative changes in rates.
2007-01-24 10:55:12 · answer #1 · answered by Ian 3 · 0⤊ 0⤋
Would you like to elaborate? Some people invest money in hedge funds. Some hedge funds trade Treasury bonds. OK. So what are you getting at?
2007-01-24 16:53:14 · answer #2 · answered by KevinStud99 6 · 0⤊ 1⤋
These people are investers of any type, and their thinking they want to reduces the riskyness of their portfolio
2007-01-24 17:32:06 · answer #3 · answered by Mr. DC Economist 5 · 0⤊ 1⤋
World bank will let you research this. 2006 results are in, so have fun playing.
2007-01-24 17:03:34 · answer #4 · answered by Giggly Giraffe 7 · 0⤊ 1⤋