Hedge Funds' Ill-Timed Treasury Shorts Reach Record High

Hedge funds have increased their short positions on US Treasuries to a record level just before weaker-than-expected bond sales and jobs data triggered a rally. Leveraged funds have ramped up net short Treasury futures positions to the highest level since 2006, despite the previous week's rally in cash bonds. The recent decline in yields on 10-year Treasuries can be attributed to a combination of factors, including more benign US refunding needs, weaker jobs data, and signs of the Federal Reserve becoming less hawkish. Traders are now pricing in over 100 basis points of rate cuts by the end of next year.