Hedge funds drastically reduced short positions in 5-year Treasury futures over the past week, paring a bearish bet to the lowest level since the aftermath of the US presidential election last November.
Leveraged funds, a proxy for hedge funds, held a net short position of 895,491 contracts in the 5-year Treasury future on February 21, according to data from the Commodity Futures Trading Commission on Friday. That is down from a net short position of 1.03m in the week prior, US capital markets correspondent Eric Platt reports.
At the same time, the funds added to their long position in the 2-year Treasury future and slightly reduced a short position on the 10-year contract during the past week, the data showed.
The shifts mark a reversal for the hedge-fund community, which had been building a growing short position in the 5-year Treasury future since August. Over that period, the yield on the 5-year Treasury note climbed 65 basis points, a move largely tied to the so-called Trump trade. Yields rise as bond prices fall.
But after touching a more-than-five-year high in December, the yield on the 5-year Treasury note has been somewhat range bound. Since the start of the year, the yield has fallen 12 basis points.
Cheng Chen, a rates strategist with TD Securities, said the pullback was likely short covering, which he added had likely gotten ahead of itself in January.
By contrast, asset managers — who had taken the opposing side of the trade — reduced their net long position in the 5-year Treasury future as of February 21, according to the CFTC data.