On April 24, the Fed was convinced that the U.S. economy could avoid a recession despite the burden of rising interest rates. Hedge funds seem to agree.
As of April 18, leveraged investors’ net short position in 10-year U.S. Treasury futures rose to a record 1.29 million contracts, according to CFTC data. It was the fifth straight week of increases in net shorts.
Damien McColough, head of fixed income research at Westpac in Sydney, said hedge funds may think inflation will be more stubborn than many in the market are currently expecting.
On the face of it, this massive shorting does not reflect the view of a recession anytime soon.
U.S. Treasury yields have wobbled in recent weeks as the debate intensified over when policymakers would start cutting rates, with hedge funds set to vindicate the Fed’s view that borrowing costs need to keep rising.