Speculators trim bearish bets on US 10-Year Note futures: CFTC Data

Speculators have reduced their bearish bets on US Treasury 10-year note futures, leading to the lowest net shorts in 1-1/2 years, according to the latest Commitments of Traders data from the Commodity Futures Trading Commission (CFTC).

The data showed that net shorts on benchmark 10-year note futures fell to the smallest level since December 2022, reaching 353,920 contracts. This decline comes after the previous week, where 10-year net short contracts stood at 362,039.

The reduction in net shorts on 10-year note futures indicates a belief among traders that 10-year yields might have peaked. Despite hitting 4.739 per cent on Thursday, the highest since November 2, the benchmark 10-year yield has since retreated to 4.667 per cent.

Many analysts in the bond market see potential for further increases in 10-year yields amid persistent inflation and tightness in the labour market. The upcoming Federal Open Market Committee meeting is expected to reinforce expectations of a hawkish Federal Reserve, potentially prolonging higher interest rates.

However, reaching the psychologically significant 5 per cent level for 10-year yields remains uncertain. BMO analysts, led by Ian Lyngen, noted that achieving such a milestone would face challenges, particularly if there's further weakness in the equity market triggering flight-to-quality flows.

In contrast, net short positions on two-year futures rose in the latest week to 980,726 contracts, indicating a belief that the Fed might delay cutting interest rates, thereby keeping short-term yields elevated.

U.S. rate futures currently reflect a 58 per cent chance of a Fed rate cut at the September meeting, down from 68 per cent in the previous week, according to the CME's FedWatch tool. The probability of a Fed easing in December stands at over 80 per cent.

Additionally, net short bets on five-year note futures also decreased, further reflecting shifting sentiments in the bond market.

(With Reuters inputs)