(Bloomberg) -- Hedge funds are betting this year's stellar start for Treasuries is too good to last, quietly building up the biggest bearish bet on bond futures on record.
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An aggregate measure of net-short non-commercial positions across all Treasuries maturities has hit 2.4 million contracts, according to the latest data from the Commodity Futures Trading Commission as of Jan. 24. The positions cover a multitude of investment strategies from outright bets to yield-curve wagers to relative trades to hedges, but the overall direction clashes with the narrative that a peak in rate hikes is near and a US recession will push investors back into bonds.
"The surge of bets against Treasuries may be driven both by the risk for a hawkish Federal Reserve meeting this week and also the longer-term concern that a soft landing would mean higher yields," said Chamath De Silva, a senior portfolio manager for Sydney-based BetaShares Holdings. "If the US economy can thrive in the face of the tightest hiking in recent history then that should mean we end up with a higher neutral rate and and a re-steepening of the yield curve."
Treasuries roared out of the gates in January, flirting at one stage with their best start to a new year in more than three decades, on widespread anticipation the Fed is nearing the end of rate hikes as inflation eases and the US economy cools. A Bloomberg index of the bonds has climbed 2.3% so far this month, after falling 12.5% last year.
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Investors are readying for the Fed's latest policy decision this week - and key job-market data - in what is seen as the first big test of the Treasuries rebound.
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