A Big Asset Manager Deleveraging Is Underway in Treasury Futures Edward Bolingbroke Asset managers are offloading long-duration Treasuries futures contracts, an indication that forced selling is underway as cash yields hover just off multiyear highs. Money managers shrunk their bullish position in ultra-long bond futures by about $27 million-per-basis point in risk in the two weeks ending Oct. 6, according to Commodity Futures Trading Commission data. That’s equivalent to roughly $38 billion worth of the current 10-year cash note.
In that same period, the price of futures contracts fell sharply as 30-year yields rose to a 24-year peak of 5.68%. It was part of a monthslong selloff tied to concerns about the inflationary impact of the US-Israeli war on Iran, worsening government finances around the world and an AI boom that’s pouring fuel on an economy that the Federal Reserve is trying to restrain. The latest CFTC data, released Friday, also offered fresh evidence that technical factors are contributing to the recent slide in long-end bonds.
The figures showed signs of forced selling from asset managers, whose portfolio duration had extended due to mechanics around the underlying securities involved in cheapest-to-deliver bonds. So-called “switch-risk” dynamics are triggered as the deliverable basket of securities is altered, and the cheapest-to-deliver — or CT D — security starts to migrate toward a longer-maturity bond. This can lead to forced selling.
See more: New Hazard for Treasuries Hides in Bond Futures’ Fine Print Open interest, or the amount of new risk held by traders, has also supported a deleveraging move in ultra-long bond futures. The data showed open interest has decreased for seven consecutive sessions for the ultra-long bonds, for a total amount of almost $20 million-per-basis point in risk. Rising yields over the same period also indicated an unwind of long positions.
See more: Big Unwind in Ultra-Long Bond Signals Asset Manager Deleveraging.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing