Bond shorts are at extreme levels, betting on Fed to deliver on rate hike expectations

Sept. 16 (Xinhua) -- Before the Federal Reserve announced its interest rate decision on Wednesday, bond traders aggressively built bearish positions, betting that the wave of U.S. Treasury bond selloffs that pushed yields to more than a decade highs would continue.

Benchmark 10-year Treasury yields rose to their highest level since 2007 on Tuesday as traders prepared for a possible Fed rate hike in response to inflation concerns.

Meanwhile, 2-year yields rose to their highest level since 2024.

Market positions suggest investors expect the bond market to weaken further, with limited willingness to buy at low levels.

The JPMorgan U.S. Treasury client survey showed spot market traders overweight short bets at their fastest pace since early 2025 over the past week.

CME Group's outstanding contract data showed that investors also increased their short positions in Treasury futures around the time of last week's stronger-than-expected inflation report.

In the federal funds rate futures market, a large, bearish trade in which the underlying contract changes by 1 basis point could be profitable or lose $1.9 million.

Swap markets currently show that the Fed is expected to tighten by about 50 basis points for the rest of the year, including the September meeting.