The overall short position in interest rate futures soared to -$44.55 billion in 10 year note futures, according to the Commodity Futures Trading Commission (CFTC) Commitment of Traders report. This recent move of $6.98 billion pushes the largest net short position in Treasuries since May of 2006. The 5 year note futures net shorts rose by $2.99 billion.
As a recent RBS report pointed out, the net short position in US Treasuries is now $107.51 billion.
Chart courtesy of RBS
Experts predict 2014 curve to steepen: CFTC
The move in net short positions, betting that rates will rise, follows the December announcement by the US Federal Reserve will begin to taper back its stimulus program that has been suppressing interest rates. “With inflation this low, I would expect an upside target of 3.60%,” said Jay Feuerstein, who manages $300 million in various strategies across the yield curve for the hedge fund 2100 Xenon. “In 2014 I expect the curve to steepen, the dollar to weaken and trend following to return as the economy can stand on its own two feet.”
Feuerstein was among a small group of professionals trading on the yield curve that made public statements predicting the Fed taper announcement in January and established short positions. Many professional traders along the yield curve have been speculating as to the real potential ten year note yield if the Fed had not been engaged in stimulative efforts.
Incoming Janet Yellen will change structure of QE: CFTC
Feuerstein projects that incoming Federal Reserve Chairman Janet Yellen will change the structure of quantitative easing from focus on the long end of the curve to the short end. “Yellen is not the biggest fan of QE. She might tell you the long end of the curve is not what matters most.” While some yield curve prognosticators have predicted if QE were to end, the ten year note yield might jump to 4.75%, Feuerstein thinks this is too high. One items is clear: there are very few traders who argue that the “natural” rate for the Ten Year Note – without Fed stimulative efforts – is going to end lower.
By: Mark Melin