Traders extended their short bets against US government bonds as long-term yields hover near a 24-year high, signaling speculation the selloff is likely to continue even after a sharp slowdown in job growth pointed to cooling in the economy. Some raced to cover bearish positions soon after the weak employment figures were released on Friday, contributing to a short-lived bond rally. But since then, open interest has been rising in futures tied to longer-dated securities, indicating traders are continuing to brace for prices to decline.
Citigroup Inc. strategist David Bieber said the market's posture toward Treasuries continues to be at "extreme short" levels, showing that an "extended short bias" persists. He said recent activity is being driven by both new shorts and long liquidations. The trading suggests that Tuesday's session may only be a temporary respite from the downturn that's been hammering the market for months.
The steady rise in yields has been driven by the renewed inflation shock of the Iran war, concern about worsening government finances, and an AI boom. Technical factors like convexity hedging and futures mechanics have exacerbated moves. Anshul Pradhan of Barclays Capital expects those pressures to ease, but sentiment may continue to be a drag.
Bank of America Corp. strategists noted short positions by Commodity Trading Advisers "remain near maximum levels." In the week to Oct. 5, investors increased both short and long positions by 2 percentage points, leaving the least amount of neutrals since Aug. 2023. The premium to hedge Treasury futures rose near the highest this year, heavily favoring puts versus calls.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing