Whatever is driving it, the sheer size of the record short positions and the pace at which they are growing suggest the reversal, when it comes, could be powerful.
Leveraged funds - those more likely to be active in the basis trade - grew their net short position by 149,000 contracts to 2.08 million, a new record.
Reuters Image Acquire Licensing RightsIn the two-year space, non-commercial accounts grew their net short position slightly to a new record 1.454 million contracts, and leveraged funds' net short position rose substantially to 1.716 million contracts, also a new record.
A short position is essentially a bet that an asset's price will fall, and a long position is a bet that it will rise.
Reuters Image Acquire Licensing RightsIf softer inflation and a more dovish U.S. central bank keep yields under downward pressure, funds' short Treasuries position is likely to come under increasing pressure too.
Persons:
Dado Ruvic, Jamie McGeever, Paul Simao
Organizations:
REUTERS, Rights, Federal Reserve, Futures Trading Commission, Reuters, Bank of America, UST, Thomson
Locations:
Rights ORLANDO , Florida, U.S