Hedge Funds Shift to Bearish Bets on Treasury 10-Year Notes

Date: Tuesday, May 21, 2013
Author: Susanne Walker, Bloomberg

Hedge-fund managers and other large speculators held a net-short position in 10-year note futures for the first time in almost two months amid speculation Federal Reserve officials may taper the pace of asset purchases.

They moved to the bearish wagers in the week ending May 14 for the first time since March 22, according to U.S. Commodity Futures Trading Commission data. Speculative short positions, or bets prices will fall, outnumbered long positions by 11,153 contracts on the Chicago Board of Trade. The previous week, traders were net-long 37,956 contracts.

“There’s a lot of talk right now of tapering starting sooner than later,” said Justin Lederer, an interest-rate strategist in New York at Cantor Fitzgerald LP, one of 21 primary dealers that trade with the Fed. “If the Fed does come out and say they will be tapering, the first reaction would be higher yields.”

The Fed said after a policy meeting on May 1 it will maintain stimulus as long as the outlook for inflation doesn’t exceed 2.5 percent and as unemployment remains above 6.5 percent. Fed policy makers meet on June 18-19. The central bank will release minutes of the April 30 to May 1 policy makers meeting on May 22.

The yield on the 10-year note has risen for three consecutive weeks, from 1.66 percent on April 26, in the longest stretch of increases since December. The yield rose seven basis points today to 1.95 percent in New York.