Hedge Funds Face Into Bank Turmoil With Epic Short Treasury Bets

Hedge funds supercharged bearish Treasury bets to historic levels just days before the US banking turmoil took a turn for the worse and spurred a stampede for the world’s safest assets.

Leveraged funds boosted overall shorts on US bond futures to a fresh record in the week of May 2, according to a gauge of aggregate net positions based on the latest data from the Commodity Futures Trading Commission. That’s a seventh straight week of ramped-up bearish bets — the longest streak since 2017.

The positioning preceded a hectic week for Treasuries that saw a rally spurred by jitters around US regional banks and forecasts the Federal Reserve could pause its most aggressive tightening cycle since the 1980s. However, sentiment flipped again Friday as better-than-expected US jobs data dampened expectations of a pivot and propelled yields higher.

“We acknowledge there are some near-term risks — fears about smaller banks and an unresolved debt ceiling — that could further deepen cut pricing,” Goldman Sachs Group Inc. strategists including Praveen Korapaty wrote in a note. However, Fed cut bets are “likely overdone when viewed against a robust macro backdrop.”

Hedge Funds Record Short Treasury Future Positions