Hedge funds have increased their short bets on US rates as the flow of economic data improves and inflation figures edge higher, according to a report by Lyxor.

Moderate price pressures materialised recently with personal consumption expenditure (PCE) falling 1.6% year on year in April, even though the inflation rate remained below the US Federal Reserve's 2% target. This triggered a rise in ten-year treasury bond yields last week, which caused some losses for commodity trading advisors (CTAs).

In this environment, global macro funds have aggressively cut their net short positioning on US rates and credit, from -9% of net assets at the end of April to -36% on June 10.

With regards to recent performance, equity-oriented strategies including those driven by events, continue to rebound while long-short credit and fixed-income arbitrage strategies remain resilient in spite of higher-bond yields.

The strongest performance was registered by merger-arbitrage funds. The pipeline of corporate events, including mergers and acquisitions, continued to increase with high volumes of transactions announced recently.

Positioning on commodities has evolved. Some global macro and CTAs increased their long positioning on energy, likely associated with the mini-stimulus package announced by the Chinese authorities.

The overall positioning of global-macro funds on energy is moderate, but increasing from 1.8% of net assets in early May to 3.5% on June 10.

Meanwhile, CTAs have considerably sizeable positions that increased from 20% of NAV to 25% during the same period.