Post-Fed, US Treasury 5-year futures' net shorts hit lowest since Sep

[NEW YORK] Speculators' bearish bets on US Treasury 5-year note futures, that part of the yield curve that reflects interest rate expectations, dropped to their lowest since mid-September last year, Commodity Futures Trading Commission data showed on Friday (Feb 4).

US 5-year note shorts fell to 120,524 contracts, following the Federal Reserve's policy meeting last week, from 140,457 contracts previously.

Fed chair Jerome Powell flagged multiple interest rate increases this year in a briefing after the Fed statement, citing the economy's strong labour market and persistently high inflation.

US 2-year note futures' net longs, on the other hand, increased to 47,474 contracts compared with 31,877 contracts in the prior week. US 2-year notes also reflect market expectations on interest rates.

On the longer end of the curve, net shorts on US 10-year note futures rose to 274,875 contracts, from 264,656 contracts the week before.

Net shorts on US Treasury bond futures declined by nearly half to 36,548 contracts, the smallest net short since late December.

Overall, Penglu Zhao, G10 rates quantitative strategist at TD Securities said speculators were large net buyers of the long end after a hawkish FOMC last week, "which likely helped flatten the Treasury curve".

The US5/30 Treasury yield curve flattened to 42 basis points after Powell's briefing last Wednesday. The US 2/10 yield curve saw its spread narrow to 60 basis points, the tightest since late November 2020.

"It is noteworthy that leveraged funds were net buyers across the curve, while asset managers were buying TU (US 2-year note futures and TY (10-year note futures) while selling the long-end," Zhao added. REUTERS