Undercurrent is surging! Hedge funds are betting heavily on falling U.S. Treasuries, with net short positions hitting the highest level since 2006 Author FX168

FX168 Financial News Agency (North America) News On Monday (November 6), hedge funds expanded their short positions in U.S. Treasury bonds to a record level, just before lower-than-expected U.S. bond sales and weak employment data spurred stock market gains.

Leveraged funds increased their net short positions in U.S. Treasury futures to the highest level since 2006, according to the latest U.S. Commodity Futures Trading Commission (CFTC) data as of October 31. The funds continued to bet that Treasury futures prices would fall even as cash bond prices had risen in the previous week.

Gareth Berry, strategist at Macquarie Group, said, “The short position in U.S. Treasuries appeared to have become extreme last week and this situation is an accident waiting to happen. The volatility in U.S. Treasury bond prices over the past few months is a classic example of a The persuasive story influenced price action until it went too far, causing excessive price volatility, and now the market is correcting.”

(Source: CFTC, Bloomberg)

The 10-year U.S. Treasury yield has fallen more than 40 basis points since peaking at 5.02% on October 23. That’s because traders in the $26 trillion bond market are back to pricing in the end of rate hikes. Short-term investors have been unwinding their positions due to reduced financing needs in the United States, weak employment data and signs of an increasingly dovish Fed policy. The combination of these factors may have contributed to the decline in the yield on the 10-year Treasury note.

Investors may also take short positions as part of a basis trade, a strategy designed to profit from small price mismatches between futures and the contract’s underlying bond. Such trades often involve large amounts of borrowing, which can exacerbate market volatility when funds are forced to close positions in a hurry.

Asset managers expanded their long positions in the U.S. Treasury futures market, according to the latest U.S. Commodity Futures Trading Commission (CFTC) data.

Traders expect rates to fall more than 100 basis points from an expected peak of 5.37% by the end of next year, swaps data showed. They brought forward their forecast for the first rate cut to June from July, based on policy decisions and employment data.

The U.S. government expressed discomfort with higher yields, putting the brakes on a sell-off driven by market momentum. “The combination of weaker data, dovish signals from Powell and a stronger-than-expected funding outlook means Treasuries are likely to trade lower in the new week,” Citi strategists, including Jabaz Mathai, wrote in a memo. Keep going up.”

Open interest in the futures market, or the amount of risk being held, increased rapidly in 2-year and 5-year Treasury futures, building on investor expectations for rate cuts from the Federal Reserve next year and beyond, according to Friday’s price action. consistent. There was also a small reduction in positions in 10-year Treasury futures, which was consistent with some investors unwinding short positions and supported Friday’s rise in Treasury prices.

Original link