Hedge funds’ net bearish positions on U.S. 10-year Treasury note futures have surged to the highest level ever in the latest week, data from the Commodity Futures Trading Commission (CFTC) revealed. Meanwhile, the number of bearish bets on two-year note futures has declined, with net positions reaching their lowest point since August 2023.
Net Short Positions in 10Y Treasuries Hit 890K Last Week
According to data released by the Commodity Futures Trading Commission on Friday, speculators have increased their net bearish bets on U.S. 10-year Treasury note futures to a historic high.
In the latest week, net short positions in 10-year Treasury futures rose to 889,385 contracts, which increased from the previous week’s 787,020 contracts.
Conversely, there was a reduction in bearish bets on two-year note futures, with net positions at their lowest since August, as indicated by the CFTC data. 10-year and 2-year notes traded slightly lower on Friday, closing at 4.11% and 4.39%, respectively.
The Implications of a Massive Short Position on 10Y T-Note Futures
The historic surge in the number of short positions in 10-year yields suggests that hedge funds strongly believe that a downturn can be avoided despite the impact of the inflation-fighting policy tightening on economic activity over the past two years.
At the same time, it could indicate that leveraged investors, particularly hedge funds, appear to anticipate a stickier inflation scenario than what is currently priced into the broader market. Simultaneously, it does not reflect the views that a near-term recession is likely.
Analysts and economists closely monitor bond yields because they serve as crucial indicators of financial markets’ overall health and sentiment. They provide insights into investors’ expectations for inflation, economic growth, and interest rates.
As such, changes in bond yields can signal shifts in market sentiment, impacting investment strategies and influencing decisions made by central banks and policymakers. Generally, factors such as economic data releases, inflation expectations, central bank policies, and geopolitical events contribute to movements in this market.
After hiking interest rates 11 times to 5.25% – 5.50%, the Federal Reserve is largely expected to begin cutting interest rates in 2024. Expectations of this decision have been one of the primary catalysts driving the stock market’s rally in recent weeks.
However, an unexpected uptick in the consumer price index (CPI) in December has indicated that inflation remains stickier than anticipated, suggesting that the first cut may not come as soon as expected.
Do you think the Federal Reserve will start cutting rates as quickly as the market expects? Let us know in the comments below!
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
About the author
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird’s US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.