📝Macro Hedge Funds Exhibit A Low Level Of Conviction: UBS Strategy

My FX Flow Monitor shows hedge fund positioning has flipped with the average holding period shortened significantly. Also, macro quantitative strategies with high Sharpe ratios have experienced significant drawdowns. I believe some of this lack of conviction stems from the correlation break between USD and yield differential. It is uncertain whether this is just a temporary phenomenon or a structural change in regime. • It is not evident that the sharp rise in US back-end yields has driven by massive US Treasuries selling from foreigners on the secondary market, but foreigners have taken a smaller share in US Treasury auctions.

• The weekly cross-border flow data from Japan Ministry of Finance shows foreigners have purchased about $87 bn of Japan bonds since August 2024 and $35 bn month-to-date in April 2025. Meanwhile, Japan investors flowed out $21 bn of their foreign bond investments in the first two weeks of April. Given the US and Germany yield divergence, I believe European bonds should see similar flows but need to wait for the ECB to report its April cross-border flow two months later.

• Similar reallocation flows are also observed in the EM space. ETFs listed in Taiwan have seen $2.6 bn of outflows this year. Taiwan lifers were estimated to allocate $80 bn ETFs that track overseas fixed income while retail held about $10-20 bn of these Efts. So they have room to sell more US Treasuries.

• How about Gold? EX Flow Monitor shows financial intermediaries, including commercial banks and private banks, have accelerated their Gold purchases since the beginning of 2025 (as the precious metal has enough volume to digest the reallocation outflow of US Treasuries. Also, its proportion in investment and reserve portfolios have room for growth. While the trade war may have back-and-forth, I believe this global asset reallocation will be a longer-term trend, which should benefit EUR, JPY and Gold as diversifiers. I have recommended short USDJPY since March 13 and now reset the first target level down to 135 and second target level to 130. Also, I recommend selling US 30y Treasury with a target yield at 5.10%. - UBS Strategy