Hedge Funds Reject Central Banker Criticism on Volatility

 

The Washington-based Managed Funds Association says its members lack the firepower to disrupt the $20 trillion U.S. Treasuries market, as executives at the Bank of England and Bank for International Settlements have said.

Thelobby, whose members manage about $1.6 trillion of assets, funded research by Harvard Business School ProfessorMarco di Maggio that points the finger at foreign institutions as big sellers of Treasuries. And the part of the Treasury market that the funds tended to trade — the cheapest-to-deliver bonds — didn’t suffer the same upheaval, Di Maggio wrote.

“Aggregate Treasury positions held by hedge funds were far too small to be the main cause of the disruptions,” Di Maggio wrote.

Read more: Before Fed acted, leverage burned hedge funds in Treasury market

In contrast, the BOE’s executive director of markets said in June that the funds were “stress amplifiers” through forced selling to meet margin calls as they unwound an estimated $90 billion of the trades. The Basel-based BIScalled them “a key driver” of the “startling” and “severe dislocation” in the market.

Di Maggio’s research feeds into the debate among academics and …

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