Short Cover Risk Seen in Bonds as Market Pricing Nears Fed Dots
- Leveraged funds aggressively unwind shorts over past 2 weeks
- Swaps close to matching Fed forecast of three cuts this year
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CTA positioning from a tactical standpoint has recently been seen at a ‘max short’, though evidence in futures data suggests that an unwind could be underway, leaving Treasuries at risk of a short-covering rally in the near term.
This comes at a point where a continued selloff in the front-end of the curve may start to find road-bumps, as Fed-dated swap contracts close in on aligning with the forecast of Federal Reserve members for three rate cuts by the end of this year.