May 22, 2014
Sizeable short positions on US Treasuries have been closed out.
Treasurers deciding how much to hedge interest rate risk take note: The short position on US Treasuries that had been growing for the first few months of this year has been closed out. According to IFR, “Duration-weighted speculative positioning contracts inched into positive territory for the first time since August.”
Treasurers deciding how much to hedge interest rate risk take note: The short position on US Treasuries that had been growing for the first few months of this year has been closed out. According to IFR, “Duration-weighted speculative positioning contracts inched into positive territory for the first time since August.”
These speculative short positions became painful loss-makers as the yields on Treasuries have declined this year. Betting on rising rates has been a popular tactic for hedge funds since this time last year.
The end of the Treasury short trade, announced by the CFTC, is not a clear indication of where rates will go. FOMC minutes released on May 21 showed more interest in devising an “exit plan” from the near-zero interest rate policy the Fed has pursued since the financial crisis. And Fed economists think that the economy will grow strongly this year and next.
On the bright side, first-quarter GDP was dreadful and the second quarter might not be much better. If so, the shorts got out at the right time.