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Speculators raise US 10-year T-note net shorts

Speculators' net bearish bets on US 10-year Treasury note futures rose earlier this week after longer-dated yields f

December 14, 2018

Speculators' net bearish bets on US 10-year Treasury note futures rose earlier this week after longer-dated yields fell to their lowest levels since late August, according to Commodity Futures Trading Commission data released on Friday.

Treasury yields have fallen in recent weeks on worries about slowing economic growth, which stoked bets the Federal Reserve would put a brake on raising short-term interest rates sooner than previously thought.

The amount of speculators' bearish, or short, positions in 10-year Treasury futures exceeded bullish, or long, positions by 393,802 contracts on Dec. 11, according to the CFTC's latest Commitments of Traders data.

A week earlier, speculators held 293,186 net short positions in 10-year T-note futures.

The pickup in bearish positions among speculators suggested the decline in yields has bottomed.

On Friday, the 10-year Treasury yield was 2.889 percent, which was above the 3-1/2-month low of 2.825 percent reached on Monday.

This week's $78 billion in coupon-bearing Treasury supply and optimism about US-China trade relations lifted yields from their earlier lows, analysts said.

Among other Treasury futures, speculative net shorts in two-year T-notes reached a record high 417,237 contracts on Tuesday.

The US central bank is widely expected to raise key lending rates by a quarter point next week to 2.25-2.50 percent, but signs of slowing growth and recent market volatility fed expectations Fed policy-makers may reduce the number of rate hikes, or even put an end to its rate-hike campaign in 2019.

Speculative net shorts in five-year note futures fell by 61,848 to 286,093, which was the lowest since November 2017.

Two-year yields ended the week barely above five-year yields. Last week, two-year yields turned higher than five-year yields for the first time in more than a decade.

The "inversion" of the front half of the yield curve raised speculation on whether the entire curve will soon invert. Such a market phenomenon preceded each US recession in the past 50 years.

Copyright Reuters, 2018