Treasury Bond Bulls Gain Upper Hand in Futures Positioning Shift

Hedge funds and other large speculators swing to net long

The latest dive in commodity prices has prompted hedge funds and other large speculators to take a bullish view on Treasuries for the first time since last fall.

Speculative accounts added a net of nearly 33,000 10-year U.S. Treasury futures contracts as of July 21, according to data from the Commodity Futures Trading Commission. That left the group with an overall bullish position in U.S. government debt for the first time since the week ended Sept. 26, when crude-oil prices were in the early stages of a precipitous decline.

``These commodities are extremely unloved,'' said William O'Donnell, head of U.S. Treasury strategy for Royal Bank of Scotland Group Plc's RBS Securities unit in Stamford, Conn. ``That could lead to lower inflation expectations.''

This month, energy prices have dropped back into bear-market territory. That has prompted traders to ratchet down their forecasts for inflation, which could affect the Federal Reserve's decision about when and how quickly to raise interest rates. The Bloomberg Commodities Index has dropped 9.2 percent so far this month to its lowest level since 2002.

``At some point in the future, we could see some stability in commodity prices,'' O'Donnell said. ``That would lend some stability to 10-year yields.''

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