More Rate Hikes Ahead? Hedge Funds Keep Shorting T-Bills Relentlessly

Hedge funds continue to extend their short positions on short-term Treasury Bills at a time when there is a widespread opinion that the Federal Reserve's rate hiking cycle may not be over yet.

Leveraged investors increased their net-short two-year Treasury positions for an eleventh straight week in the period to June 6, reported Bloomberg citing the latest Commodity Futures Trading Commission figures. That's the longest run on record according to data going back to 2006, it said.

Also Read: How to Buy Treasury Bonds

Yields on two-year treasury notes are already trading higher by about 96 basis points from the lows seen in early May. However, they are yet to reach the highs of over 5% seen in early March — just prior to the banking crisis in the United States.

The iShares 1-3 Year Treasury Bond ETF SHY shed 1.08% while the Vanguard Short-Term Treasury Index Fund ETF VGSH lost 1.09% during the period, according to Benzinga Pro.

Expert Take: Andrew Ticehurst, rates strategist at Nomura Holdings Inc. in Sydney told Bloomberg investors are signaling rates will have to hold at a higher level for longer than previously thought.

"Central banks are not yet done: rates are still going to go up a little bit, and we have already had a little bit of a scare last week already with the Reserve Bank of Australia and Bank of Canada raising rates unexpectedly," he said.

Goldman Sachs Group Inc. indicated the market impact of any pause by the central bank this week will likely be short-lived.

"Absent a recession, we remain skeptical that the amount of easing currently priced will be realized," Goldman strategists including Praveen Korapaty wrote in a note, according to the report.

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