Hedge funds and leveraged investors have reduced their bearish positions on U.S. five-year Treasury futures, with net short positions reaching their lowest levels since July, according to the latest Commodity Futures Trading Commission (CFTC) data reported by Reuters. This adjustment reflects broader efforts by market participants to prepare for year-end portfolio rebalancing.
The data also suggests a decline in the prominence of basis trades and arbitrage strategies that exploit price differences between cash Treasuries and futures. Historically, these trades have played a significant role in the Treasury market and less influential in the past week.
For the week ending December 10, leveraged funds scaled back their net short positions in five-year Treasury futures to 2,776,446 contracts, marking the third consecutive week of declines from the record short levels observed in mid-November. Similarly, speculative traders, who typically hold positions without underlying business interests, reduced their net short holdings from 1,861,100 contracts the previous week to 1,790,430 contracts.
Institutional asset managers also adjusted their positions, cutting their net long holdings on five-year Treasury futures to their lowest levels in six weeks. This shift follows a surge to record highs about a month ago. Asset managers often maintain a generally long bias in Treasury futures to align portfolios with benchmark indices, making this decline noteworthy.
Across other Treasury maturities, sentiment was mixed. Hedge funds increased their net short positions in two-year Treasury futures to the highest levels since mid-November. At the same time, asset managers reduced their net long positions to the lowest levels since September. In ten-year Treasury futures, hedge funds slightly expanded their net short positions, while asset managers modestly boosted their net longs.
These adjustments reflect a cautious approach by market participants as they navigate fluctuating conditions and prepare for year-end market dynamics.
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