Hedge Funds Bet on Flatter Yield Curve During Fed’s Hawkish Week
(Bloomberg) -- Hedge funds boosted their bets on a flatter U.S. Treasury curve even after a hawkish turn by the Federal Reserve last month pushed yields the other way.
Traders of U.S. bonds have been skeptical of bets on a steeper yield curve, which would be a sign of further normalization of the U.S. economy and its financial markets. A growing wall of worry including slowing economic growth, elevated inflation, supply-chain bottlenecks and the U.S. debt ceiling is weighing on investor minds despite the ongoing recovery from the pandemic.
Net-short leveraged-fund positions on five-year Treasury futures grew to the most since January, according to the latest data from the Commodity Futures Trading Commission, which covered the week of the September meeting. But speculative net-long bets on 10-year equivalents also climbed, indicating that traders are positioning for that portion of the yield curve to flatten.
The spread between 5- and 10-year yields has widened eight basis points since the Fed’s Sept. 22 meeting, to 0.53% as of Monday, after policy makers revealed a growing inclination to raise interest rates next year.
While the widely-watched differential between 5- and 30-year yields also rose after the Fed meeting, it remains well below its highs from earlier this year.
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