Hedge funds have been ramping up bets against U.S. stocks amid the worst streak of losses for the S&P 500 since the collapse of Silicon Valley Bank, according to data from Goldman Sachs Group’s prime brokerage unit. Goldman’s hedge fund clients increased short positions in single stocks, exchange-traded funds and equity index products through Friday for the third straight week, according to research shared by the bank with its clients.
Hedge funds have now increased their short positions during five of the last six weeks, with the bulk of the action occurring in single-name stocks. Shorting a stock involves borrowing the shares from a broker, like Goldman, and selling them, hoping to eventually buy them back and close the position at a lower price.
GOLDMAN SACHS
GOLDMAN SACHS
As a result of the proliferation of short bets, the ratio of short positions to long positions among Goldman’s prime-brokerage clients is nearing lows from last fall, when the S&P 500 logged its 52-week closing low of 3,577.03 on Oct. 12. If the ratio goes much lower, it will reach its lowest level in five years. Some see hedge-fund positioning as a counter-indicator, meaning stretched short positioning could coincide with a turnaround.
GOLDMAN SACHS
As short bets increase, funds are paring back their leverage, meaning they’re using less borrowed money to try and boost their returns, another sign that funds are growing increasingly concerned about a potential outburst of volatility.
GOLDMAN SACHS
One Goldman analyst blamed hedge funds’ increasing bearishness on the rise in long-term Treasury yields relative to short-dated yields. The yield on the 10-year Treasury note
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was up more than 9 basis points in early trade Monday to top 4.52%, while the 2-year yield
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gained 3 basis points to 5.127% after the spread between the two widened by about 2.4 basis points last week, according to Dow Jones Market Data. Bond yields move inversely to prices, which is why, on Wall Street, this phenomenon is known as “bear steepening,” since the yield curve (the dif …
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