INSUBCONTINENT EXCLUSIVE:
By Brian ChappattaHedge funds and other large speculators are trying to catch one of the biggest falling knives in financial
interest rates have climbed with Federal Reserve rate hikes, while longerterm yields have been held relatively in check by stubbornly low
Last week, the spread between twoand 10-year Treasuries fell to the lowest since 2007.
The flattening trend has caught the attention of
everyone from Main Street to Wall Street because when the spread between short- and long-dated Treasuries falls below zero (otherwise known
as an inverted yield curve), it has predicted each of the past seven recessions
Though some would argue that market dynamics are different this time around, many are watching the curve closely for at least one signal
that the economic expansion is flagging.
For months, hedge funds have been bearish on Treasuries, regardless of maturity, expecting that Fed
tightening and a swelling federal budget deficit would keep interest rates marching higher
When Treasuries rallied and US yields tumbled on May 29 amid escalating Italian political turmoil, they appear to have doubled down (rather
though, is that the same speculator group is growing more convinced that shorter maturities will rally
In five-year futures, they pared their net short position by the most in a decade.
Now, the Commodities Futures Trading Commission data is
And speculators are considered to the most likely to quickly switch positions on any sign of opportunity or trouble
In the ensuing few trading sessions, their short positions at the long end of the curve have paid off, but going long two-year Treasuries
Several policy makers stressed the importance of monitoring the slope of the curve because of the ties between an inverted curve and the
risk of recession, according to minutes of their May meeting
stance.
Still, there are few signs from the most important members of the Fed that the market has reached that point just yet
Incoming New York Fed President John Williams reiterated the need for gradual rate increases, saying the central bank is about three hikes
steepening, with Fed policy makers all but guaranteed to raise rates when they meet next week
as a spectator if these hedge funds stick to their wagers
persistent flattening of the US yield curve has run its course
interest rates have climbed with Federal Reserve rate hikes, while longerterm yields have been held relatively in check by stubbornly low
Last week, the spread between twoand 10-year Treasuries fell to the lowest since 2007.
The flattening trend has caught the attention of
everyone from Main Street to Wall Street because when the spread between short- and long-dated Treasuries falls below zero (otherwise known
as an inverted yield curve), it has predicted each of the past seven recessions
Though some would argue that market dynamics are different this time around, many are watching the curve closely for at least one signal
that the economic expansion is flagging.
For months, hedge funds have been bearish on Treasuries, regardless of maturity, expecting that Fed
tightening and a swelling federal budget deficit would keep interest rates marching higher
When Treasuries rallied and US yields tumbled on May 29 amid escalating Italian political turmoil, they appear to have doubled down (rather
though, is that the same speculator group is growing more convinced that shorter maturities will rally
In five-year futures, they pared their net short position by the most in a decade.
Now, the Commodities Futures Trading Commission data is
And speculators are considered to the most likely to quickly switch positions on any sign of opportunity or trouble
In the ensuing few trading sessions, their short positions at the long end of the curve have paid off, but going long two-year Treasuries
Several policy makers stressed the importance of monitoring the slope of the curve because of the ties between an inverted curve and the
risk of recession, according to minutes of their May meeting
stance.
Still, there are few signs from the most important members of the Fed that the market has reached that point just yet
Incoming New York Fed President John Williams reiterated the need for gradual rate increases, saying the central bank is about three hikes
steepening, with Fed policy makers all but guaranteed to raise rates when they meet next week
as a spectator if these hedge funds stick to their wagers
