Hedge funds and leveraged investors have scaled back their bearish positions on US five-year Treasury futures, bringing net short positions to their lowest level since July, according to a report by Reuters citing the latest Commodity Futures Trading Commission (CFTC) data.
This shift suggests that market participants are adjusting their positions in anticipation of year-end portfolio rebalancing.
Positioning trends in the Treasury futures market also hint at a decline in the influence of so-called basis trades – arbitrage strategies that exploit the price differences between cash Treasuries and their futures. Based on the latest data, basis trades seem to have been less prominent during the past week.
In the week ending 10 December, leveraged funds reduced their net short positions in five-year Treasury note futures to 2,776,446 contracts, marking the third consecutive week of declines from the record short levels seen on 12 November.
Speculative traders, or non-commercial investors who take positions in futures without underlying business interests, also pared their net short positions in five-year note futures, trimming them to 1,790,430 contracts from 1,861,100 contracts the previous week.
Meanwhile, institutional asset managers reduced their net long positions on five-year Treasury futures to their lowest levels in six weeks. This follows a surge in net longs to record highs about a month ago. Asset managers frequently use long positions in Treasury futures to align portfolios with benchmark indices, leading them to maintain a generally long bias.
Positioning across other Treasury maturities, meanwhile, showed mixed sentiment, with hedge funds increasing their net short positions on two-year futures to 2,473,163 contracts, the highest level since mid-November. Asset managers, however, reduced their net longs to their lowest level since early September, retreating from record highs reached last month.
Ten-Year Futures: Hedge funds slightly increased their net short positions in ten-year futures, while asset managers modestly boosted net long holdings.
