U.S. Treasury 10-year, 2-year futures' net shorts slide in latest week -CFTC

BY Reuters | ECONOMIC | 07/01/22 05:13 PM EDT
    By Gertrude Chavez-Dreyfuss
    NEW YORK, July 1 (Reuters) - Speculators pared bearish bets
on benchmark U.S. Treasury 10-year and two-year note futures,
more than a week after the Federal Open Market Committee (FOMC)
announced a 75 basis-point interest rate hike, Commodity Futures
Trading Commission data showed on Friday.
    U.S. 10-year note futures' net shorts hit 181,680 contracts
 in the week ended June 28, the lowest since
mid-May. A week earlier, speculators held net short contracts of
228,184 in 10-year note futures.
    Net shorts on U.S. Treasury two-year note futures, which are
often sensitive to rate move expectations, also fell in the
latest week with 102,118 contracts, the smallest
net short since late May.
    With the decline in net shorts in both U.S. two-year and
10-year note futures, bond markets have signaled that the
Federal Reserve could be done hiking rates sooner than expected,
with inflation seen to have reached its peak.
    Fed funds futures on Friday have priced in 173 basis points
 of cumulative tightening by the Fed by the end of the
year, down from about 220 bps of expected hikes right after the
June meeting.
    The market's pricing for the terminal rate, or the peak for
the Fed's policy rate, has also fallen to 3.25%, from about 4%
following the June policy meeting.
    Since the June rate hike, the 10-year yield has fallen 70
basis points and was last down 8 bps at 2.8894%. The
U.S. two-year yield, on the other hand, has declined 67 bps. It
last traded at 2.839%, down 9 bps.
    While inflation worries have started to fade, recessionary
fears have begun to intensify, prompting views that the Fed may
start cutting rates by next year and in 2024.
    CFTC data also showed U.S. five-year futures' net shorts
rising to 202,664 contracts, the highest since
early June.
    Below is a table of the speculative positions in Treasury
futures on the Chicago Board of Trade and in Eurodollar futures
on the Chicago Mercantile Exchange in the latest week:
 U.S. 2-year T-notes (Contracts of $200,000)
        28 Jun 2022       Prior week
        week
 Long         275,428        257,375
 Short        377,546        376,658
 Net         -102,118       -119,283

U.S. 5-year T-notes (Contracts of $100,000)
        28 Jun 2022       Prior week
        week
 Long         330,759        373,807
 Short        533,423        477,898
 Net         -202,664       -104,091

U.S. 10-year T-notes (Contracts of $100,000)
        28 Jun 2022       Prior week
        week
 Long         274,858        269,685
 Short        456,538        497,869
 Net         -181,680       -228,184

U.S. T-bonds (Contracts of $100,000)
        28 Jun 2022       Prior week
        week
 Long          80,552         99,282
 Short        118,805        118,604
 Net          -38,253        -19,322

U.S. Ultra T-bonds (Contracts of $100,000)
        28 Jun 2022       Prior week
        week
 Long          42,179         42,428
 Short        380,162        387,484
 Net         -337,983       -345,056
 Eurodollar (Contracts of $1,000,000)
        28 Jun 2022       Prior week
        week
 Long         588,828        614,934
 Short      2,745,258      2,612,823
 Net       -2,156,430     -1,997,889
 Fed funds (Contracts of $1,000,000)
        28 Jun 2022       Prior week
        week
 Long         243,400        231,344
 Short        122,818        106,923
 Net          120,582        124,421

 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Jonathan
Oatis and David Gregorio)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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