But as U.S. inflation, inflation expectations, and Fed officials indicate, a retreat is a ways away
Hedge funds continue to bet that the U.S. Federal Reserve will end its aggressive interest rate hiking cycle soon enough, then after a brief pause begin easing policy as growth and inflation come down.
A short position is essentially a wager that an asset’s price will fall, and a long position is a bet it will rise. In bonds and rates, yields fall when prices rise, and move up when prices fall. So a retreat was always likely. But the pullback has coincided with a continued grind higher in short-term rates, yields, and Fed expectations. Traders last week briefly priced in a one-in-ten probability that the Fed’s next move in a couple of weeks will be a 100 basis point hike.
Hedge fund industry data provider HFR’s Macro Index was up 12.83% in the first nine months of the year. It is well on course for its biggest annual rise since it was launched, beating the previous best of 6.3% from 2010.Funds have fared better with their U.S. yield curve flattening trades in recent weeks.
There have only been 11 weeks of bigger net short positions since the contract’s launch over 30 years ago.
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