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Hedge funds have cut their short position in 10-year Treasury futures by nearly two-thirds from a one-year high set at the start of March, unwinding a popular trade as US sovereign debt has rallied.

Leveraged funds, a proxy for hedge funds, reduced their net short in 10-year Treasury futures by nearly 49,000 contracts in the week to April 4, data from the Commodity Futures Trading Commission showed on Friday. The net short totaled 136,322 contracts, down from 365,650 contracts on March 7.

Traditional asset managers, who have taken the opposite side of the trade, have also reduced their net long to 226,655 contracts, the lowest level since February.

The divide has represented in part a difference of opinion on the likely path of interest rates in the US. It widened markedly after the Federal Reserve signalled last year that it would tighten policy by at least three quarter-point rate rises in 2017.

The central bank’s perceived hawkishness, alongside a sell-off in Treasuries after the US election, sent yields on the 10-year Treasury to a high of 2.62 per cent in December. Yields on the note have since slid, as the so-called Trump trade fades.

Copyright The Financial Times Limited 2017. All rights reserved.
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