(Bloomberg) -- On a 10-year futures equivalent basis, hedge funds short positioning across tenors exceeded 5 million contracts onto fresh multiyear levels, according to data released by the Commodity Futures Trading commission released Monday.
Bearish sentiment also extended into the cash space, where Tuesday’s JPMorgan Chase & Co.’s Treasury client survey showed the most net short since Sept. 6 with the fewest outright longs since Aug. 15.
Federal Reserve Chair Jerome Powell is scheduled to speak on the economy at an event hosted by the Brookings Institution in Washington on Wednesday at 1:30pm local time.
The following is a rundown of how positioning has unfolded in various markets:
Stretched Hedge Fund Shorts
The combined net short across SOFR, eurodollar and Treasury futures among hedge funds increased by almost 190,000 10-year futures equivalents in the week up to Nov. 22, to over 5 million contracts and the most short over multiple years. On the flip-side, the net long position for asset managers was extended by 74,000 contracts, testing 5.5 million 10-year futures equivalents.
Bulk of hedge fund shorts were added in 10-year note futures, where net positioning was extended by $7.1 million per basis point in risk to the most short since February 2020. Hedge funds were also aggressive net sellers of ultra-long bond futures and five-year note futures in the week up to Nov. 22.
Skew Back Favoring Puts
The put/call skew on 10-year futures has recently tested parity as 10-year yields have looked to breach 3.60% to the downside for the first time since start of October. The latest backup back through 3.70% has seen higher premium re-build to hedge a move higher in Treasury yields.
Risk builds at 4.15% 10-year
Significant amount of 10-year March 2023 option open interest has built in the 110.00 put strike, equivalent to around 4.15% yield. For upside protection, large open interest sits at the 116.00 and 120.00 call strikes, equivalent to 3.30% and 2.70% yield.
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