Bond traders are all-in on the big short bet on the US Treasury market

Photographer: Sarinya Pinngam / EyeEm / Getty Images

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

The 10-year benchmark yield reached 1.62% on Friday – the highest since February 2020 – before acquisitions from foreign investors have emerged. Stronger-than-expected job creation and Federal Reserve Chairman Jerome Powell the lack of concern, for the time being, with the jump in long-term borrowing costs has encouraged traders. In a single revealing sign of how he bows, he asks lending 10-year notes on the redemption market is so high that rates have become negative, probably part of a move to shorten the maturity.

The triumph of several fiscal incentives ahead, an extremely light monetary policy and an accelerated vaccination campaign contribute to highlighting a post-pandemic reality. Of course, there are risks to the rising bond scenario. Most visibly, yields could rise to the point where they would scare stocks and worsen financial conditions in general – key metrics on which the Fed focuses for policy orientation. Even so, Wall Street analysts don’t seem to care raise your end-of-year forecasts quickly enough.

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

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

Rising yields and growing confidence in the economic recovery have led a number of analysts to recalibrate expectations for 10-year rates over the past week. For example, TD Securities and Societe Generale raised their forecasts at the end of the year to 2% from 1.45% and 1.50% respectively.

Asset managers, in turn, has fallen to the shortest net level on 10-year banknotes since 2016, according to the latest Commission data on the futures trading of goods.

Auction pressure