Bond traders make all-in to the big short bet of the US Treasury market

Photographer: Sarinya Pinngam / EyeEm / Getty Images

The fate of short sellers is not only in meme stocks the key issue. Short bets are increasingly in vogue in the $ 21 trillion Treasury market, with crucial implications for all asset classes.

The 10-year benchmark yield reached 1.62% on Friday, the highest since February 2020, before the fall in the purchase of foreign investors arose. Stronger-than-expected job creation and likeness of Federal Reserve Chairman Jerome Powell The lack of concern, for now, with jumps in long-term debt costs has encouraged traders. In a telltale sign of how they lean, ask for it ten-year banknote lending in the repurchase agreement market is so large that rates have gone negative, probably part of a step to reduce maturity.

The trifecta of more fiscal stimulus in advance, an ultra-light monetary policy and an accelerated vaccination campaign contribute to raising awareness of a post-pandemic reality. Of course, there are risks to the good bass scene. Most notably, returns could increase to the point that they would scare stocks and, in general, tighten financial conditions: a key metric on which the Fed focuses to guide policy. Still, Wall Street analysts may not like it raise year-end performance forecasts quickly enough.

“There’s a lot of tinder in this fire now to get higher returns,” said Margaret Kerins, global head of fixed income strategy at BMO Capital Markets. “The question is what the point is that higher returns are too high and really put pressure on risky assets and push Powell to act” to try to reduce them.

Stock prices have already shown signs of vulnerability to rising returns, especially technology stocks. Another area at risk is the housing market – a bright spot for the economy – with mortgage rates jump.

Rising yields and growing confidence in the economic recovery led a number of analysts to recalibrate ten-year rate expectations last week. For example, TD Securities and Societe Generale raised their year-end forecasts to 2%, from 1.45% to 1.50%, respectively.

Asset managers, on the other hand, fell to the net of ten-year notes since 2016, the latest data from the Commodity Futures Trading Commission show.

Auction pressure