NEW YORK, Oct 8 (Reuters) - Investors raised their holdings of longer-dated Treasuries in the latest week as the first U.S. government shutdown in 17 years entered a second week, feeding worries about another showdown over the debt ceiling, according to a survey released on Tuesday by J.P. Morgan Securities.
Failure to increase the $16.7 trillion borrowing limit before an Oct. 17 deadline, traders fear, would roil financial markets and could cause the government to delay payments on its debt obligations.
Wall Street stocks have fallen about 1 percent since the government reduced services and furloughed more than a half million workers. This stoked some safehaven bids for longer-dated bonds, although the move has been mitigated by concerns about a possible default that would damage the safehaven status of U.S. debt and the dollar.
There has been little progress between Democrats and Republicans toward an agreement to fund the government, although most analysts still expect the two parties to strike a last-minute pact to avoid a default.
The share of investors who said on Monday that their holdings of longer-dated U.S. government debt were greater than their holdings of portfolio benchmarks rose to 23 percent from 21 percent a week earlier, J.P. Morgan Securities said.
By holding more longer-dated Treasuries, investors increase the duration, or interest rate, risk to their portfolios in anticipation of a market rally, which generally causes longer-dated bonds to generate bigger gains than shorter-dated debt.
In J.P. Morgan's survey of its Treasuries clients, 64 percent said they were 'neutral' in their duration on U.S. government debt, or owned longer-dated Treasuries equal to their benchmarks, matching last week's level.
Thirteen percent of its Treasuries clients said they were 'short' in duration of Treasuries, or owning fewer longer-dated Treasuries than their benchmarks, down from 15 percent a week earlier.
The share of 'longs' exceeded 'shorts' in the latest week by 10 percentage points, which was the highest level of net longs since July 22. A week ago, the share of longs topped shorts by 6 points, J.P. Morgan said.
In early Tuesday trading, benchmark 10-year Treasury yields edged up 1 basis point to 2.639 percent.
Among active clients, viewed as making speculative bets in Treasuries, 23 percent said they held more longer-dated Treasuries than their benchmarks, compared with zero last week, while 23 percent said they were short in duration versus their benchmarks, down from 31 percent last week.
Fifty-four percent of active investors said their longer-dated Treasuries holdings matched benchmarks, down from 69 percent the prior week.
J.P. Morgan surveys 40 to 60 of its Treasuries clients weekly, of which 60 percent are fund managers, 25 percent are speculative accounts, and 15 percent are central banks and sovereign wealth funds.
It asks 10 to 20 of its active clients each week about their Treasuries holdings, of which 70 percent are speculative accounts and the rest are money managers.
(Reporting by Richard Leong; Editing by Andrea Ricci) Keywords: TREASURIES JPMORGAN/SURVEY
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