What it all amounts to is a broad reset, with all eyes on Trump and US trading partners. — Bloomberg
NEW YORK: Traders reeling from the steepest losses in decades in US government debt slashed futures wagers aggressively over the past week, moving to a “neutral” position as they assessed the next steps in President Donald Trump’s tariff policies.
Treasury yields soared last week as the escalating tariff face-off roiled markets and sparked a rush for cash.
With volatility in fixed income surging, traders’ main move was to take chips off the table.
In Treasury futures, they reduced positions in the US 10-year note contract the past seven sessions, by an amount equating to roughly US$22bil worth of the current 10-year cash note.
The same trend was evident among portfolio managers, who boosted their “neutral” stance by the most since 2023, according to a JPMorgan Chase & Co client survey.
What it all amounts to is a broad reset, with all eyes on Trump and US trading partners.
Financial markets are waiting to see if tensions will ease, spurring a move back into risk assets, or conversely heat up again and reignite bets that the US Federal Reserve will soon lower interest rates to support the economy.
Fund flows in US rates last week showed investors fleeing longer-dated interest-rate exposure in favour of shorter maturities, according to Meghan Swiber and Katie Craig at Bank of America. That shifting stance helped turbocharge one of the market’s go-to bets, on a steeper yield curve.
The changing maturity preference was “evidenced most clearly from domestic asset managers and foreign private investors,” the strategists wrote.
While the overall position washout in futures shows traders lacking conviction at the moment, there was a bullish signal on Tuesday related to the potential easing of rules that would allow banks to keep more Treasuries on their balance sheets.
Deputy Treasury secretary Michael Faulkender said officials are discussing a move to loosen bank regulations.
Dollar swap spreads briefly widened on the remarks, showing Treasuries were performing better than interest-rate swaps.
That’s the opposite of what was happening early last week, as the rout in bonds caused swaps to outperform Treasuries, pushing swap rates well below Treasury yields and accelerating the collapse of a popular hedge-fund trade. — Bloomberg
