large short position in treasuries
Yesterday I read a Bloomberg report that the number of hedge funds shorting U.S. Treasury futures hit a record high of 2.4 million contracts. However, hedge funds operate in many different ways, so being short on the surface does not always mean having a negative attitude toward U.S. Treasuries. In addition to shorting, investments can also be made through basis trading (buying spot and selling futures), yield curve flattening/steepening (buying long and selling short, or vice versa), or other related hedging strategies.
I think this large short position in Treasuries can only indicate two things.
1. Hedge funds are pessimistic about the future price movement of Treasuries, believing that the conflict between the market and the Fed is almost over and will be won by the Fed, not for as long as expected, in which case, the price of Treasuries will fall.
2. hedge funds are back to playing the treasury market strategy, which is one of the culprits of the financial crisis in 2020. In order to achieve such a level of position, it must be accompanied by an increase in leverage! In a illiquid Treasury market, high volatility may lead to "crowded trading".
I feel that either of these scenarios is inconsistent with our current perception of the market or its development in general, and all we can do is wait for the market's judgment and subsequent changes.
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