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THE GIST
NEWS AND FEATURES
Global Philippines Fine Living
INSIGHTS
INVESTMENT STRATEGY
Economy Stocks Bonds Currencies
THE BASICS
Investment Tips Explainers Retirement
WEBINARS
2024 Mid-Year Economi Briefing, economic growth in the Philippines
2024 Mid-Year Economic Briefing: Navigating the Easing Cycle
June 21, 2024
Investing with Love
Investing with Love: A Mother’s Guide to Putting Money to Work
May 15, 2024
retirement-ss-3
Investor Series: An Introduction to Estate Planning
September 1, 2023
View All Webinars
DOWNLOADS
economy-ss-8
Inflation Update: Weak demand softens shocks
July 4, 2025 DOWNLOAD
948 x 535 px AdobeStock_433552847
Economic Updates
Monthly Economic Update: Fed cuts incoming   
June 30, 2025 DOWNLOAD
equities-3may23-2
Consensus Pricing
Consensus Pricing – June 2025
June 25, 2025 DOWNLOAD
View all Reports
Rates & Bonds 3 MIN READ

Leveraged funds’ record short Treasuries bets surge again

October 23, 2023By Reuters
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ORLANDO, Florida, Oct 23 – Leveraged funds trading US Treasuries futures have increased their record net short position across the curve, which will do little to soothe growing concerns among regulators about the potential financial stability risks these bets pose.

Hedge funds have rapidly built up short positions in US Treasuries futures this year as part of the so-called ‘basis trade’, a leveraged arbitrage play profiting from price differences between cash bonds and futures.

The Bank for International Settlements has warned that the huge build-up in speculators’ Treasuries positions “is a financial vulnerability”, and a recent Fed paper said it warrants “diligent monitoring”.

The price difference between cash bonds and futures is tiny, but funds make their money from high levels of leverage in the repo market and the sheer volume of trade.

Commodity Futures Trading Commission (CFTC) data for the week ending October 17 show that leveraged accounts – those funds and speculators more likely to be active in the basis trade – grew across the two-, five- and 10-year space by 250,000 contracts to a total 4.71 million contracts.

That is significantly larger than the peak combined net short position from 2019 of just over 4 million contracts.

The move was particularly strong at the shorter end of the curve. Leveraged accounts increased net short position in two-year futures by 133,000 contracts to 1.554 million contracts and by 92,000 contracts in the five-year space to 1.753 million.

That’s a whisker from the two-year record net short of 1.558 million contracts in 2019, and a fresh record five-year net short.

A short position is essentially a wager an asset’s price will fall, and a long position is a bet it will rise. In bonds falling prices indicate higher yields, and vice versa.

But funds play Treasuries futures for other reasons, like relative value trades, and this year, the basis trade.

These trades appear to be a key factor behind the US bond market’s steep decline in recent months, but by no means the only one.

Worries over the US government’s fiscal health, increased debt issuance from Treasury, the Fed’s ongoing ‘quantitative tightening’ program, stronger-than-expected economic growth, and a reassessment of the interest rate outlook have all contributed to the extraordinary bond selloff recently.

Yields across the curve last week hit their highest levels since 2006-07, and on Thursday the entire Treasury curve from one-month to 30-year yield maturities was within half a basis point of being above 5%.

(The opinions expressed here are those of the author, a columnist for Reuters; Writing by Jamie McGeever; Editing by Miral Fahmy)

This article originally appeared on reuters.com

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