A recent surge in leveraged positions betting that Treasury futures will fall — at a time when Wall Street is increasingly confident that a US recession will soon spur rapid central bank interest-rate cuts — smacks of so-called basis trading, market watchers say. That’s when hedge funds seek to profit from a mismatch in pricing between Treasury futures and the deliverable note or bond.
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This kind of basis trading can distort how speculators respond to economic data, making it harder for other investors to read signals from the bond market as a guide to the US outlook.
And the net short positions being held by hedge funds across most Treasury futures tenors are only continuing to grow. Data released Friday by the Commodity Futures Trading Commission for the period to May 9 showed that across the 2-, 5-, 10-, ultra-10 and ultra-long contracts combined, they had added almost $13 million per basis point in cash risk to their net short.
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The full article is available at https://www.bloomberg.com/news/articles/2023-05-12/hedge-fund-trade-with-a-history-of-blowups-is-back-again