Who Is Short Treasurys? (Spoiler: Pretty Much Everyone)

Tyler Durden's picture

Once upon a time, news and fundamentals mattered.

Then the Fed came and ever since then the main question has been where the highest concentration of shorts is, just to squeeze the margin call daylights out of them, and generate alpha (a strategy we highlighted back in 2012).

And while shorting crappy, illiquid stocks has not worked for a long, long time because under ZIRP capital is misallocated with reckless abandon usually ending up promptly in the most worthless companies, it was not until the past year when the shorting brigade decided to assault the most liquid, allegedly, instrument: the US Treasury bond itself.

It is here where said brigade has stumbled again and again, and where despite promises of an economic recovery and inflation (and thus higher rates), the 10Y, and especially the 30Y, continue to plough ever higher, much to the amazement of the "it's all getting better brigade" signalling nothing but economic contraction and deflation for the future.

And, as Citi's Amitabh Arora points out, things for TSY shorts are about to go from bad to worse. To wit:

Flow Analysis: Over the last 3 months we have seen good appetite for EGBs, net buying of USTs, and flat demand for JGBs. However, the buying of USTs hasn’t been in 10s where the main short is located. Hedge funds are accelerating their buying of EGBs (across the curve) and decreasing their selling of USTs. Real money has resumed their buying of USTs and has started to sell EGBs. 


Futures Positioning in US. Since 2010, the CFTC has published a supplement to their weekly commitments of traders report specific to financial products. Asset managers are long, while dealers, hedge funds, and other buy side investors are short. Using alternative positioning indicators, we assess where we can give credence to the CFTC data, and where there is more to the picture than the CFTC data reveals.


Two main position imbalances


The clearest position concentration is short USTs (Figure 1). As the grey shaded squares indicate, the short has increased materially over the last 3 months. Equally importantly, there is an absence of corresponding longs in any client group to balance these shorts. Together that points to the prospect of even lower UST yields.


In other words, as wave after wave of shorts enters the "it's going to crash any minute now" Treasury short, what will continue happening is precisely the opposite, sending yields ever lower until finally the Fed will have to step in and warn that it may be about to sell TSYs in order to launch the long-overdue repricing, first in rates and then in risk.

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LawsofPhysics's picture

Define "real money", then any of this might actually matter.

Pool Shark's picture



Cash   -   Bonds   -   Gold

[all you need to know for now...]


alphamentalist's picture

central banks as neutral to small short? good one.

Kirk2NCC1701's picture

"Real Money" per MMT* = "Currency backed by full faith and force of the Government"

p.s. I realize your Q was rhetorical, but not everyone may have gotten that.  ;-)

* Modern Monetary Theory

p.s.  That's why Bernanke did not consider Gold as "Money", because it didn't meet his (MMT) definition.  ;-)

rccalhoun's picture

the narrative with that chart makes no sense

Kirk2NCC1701's picture

Why, because "Belgium" seems to have bailed?  Yeah, where IS "Belgium"?

Remember... He who panics quietly first, panics best.

himaroid's picture

I guess I should leave them a tip, or thank them, or say "I love you" or SOMETHING.

knukles's picture

Can't wait till a dealer problem or swap default, etc, starts piling out of control and additional collateral postings are demanded.

disabledvet's picture

Makes for the question "since when does actual news matter?"

This is the greatest act of spin in history. The last thing Wall Street wants is actual news. At least "no news they don't already know about or aren't in fact making." That "news" is okay...

Alea Iactaest's picture

Where is "TBT or not TBT"? That cat disappeared...

himaroid's picture

False flag attack margin calls the tbond shorts. Then a huge temporary rebound wrings out the tbond longs. Be ready.

OldE_Ant's picture

My thoughts exactly.  I said this years ago (perhaps 2009-2010) that all the FED has to do to unwind their bond positions is cause a market panic that sends everyone and their brother to buying UST's.

The bonus here is that if it's a false flag we also get a bigger brother because of all the fucks that will run to their reps and say 'save us from big bad _______ (insert flag perpetrator)'.

Once this is over and everyone and his brother is long they can start the printers in full force and inflate the fuck out of the USD, encourage the government to sell UST's to cover further shortfalls (used to inflate the war machine) and crush all UST longs as well as anyone with stupidity to actually be holding anything that moves with USD value.

Whats great here is whoever is looking to completely destroy the US does it in a nice trifecta of events all designed to completely destroy any trust in the United States and they've been at it for a very long time.

buzzsaw99's picture

"they" thought the end of qe would usher in higher ust rates? how funny.

Stoploss's picture

Please proceed to the slaughter house in an orderly fashion..

besnook's picture

i don't trade bonds but it seems the other side of that trade is worth some risk, eh?

himaroid's picture

ETF's make it easy to hedge either way. Play 'em like a fiddle.

Amish Hacker's picture

The shorts are being carried out on stretchers because they are investing the way they did years ago, when we had semi-logical markets, and the price of credit was determined by supply and demand. Forget it. The Bond Vigilantes aren't riding to the rescue this time, and interest rates will be whatever TPTB say they are.

ZeroConfidence's picture

Rumor has it that Lithuania & Elbonia are waiting to buy any dips after seeing the awesome deal Belgium got earlier this year!

FreeNewEnergy's picture

Hedge funds are short treasuries. Gotta love those guys. So smart.

OC Sure's picture

They were  just  sold heavily into the pit's close. Rollover is over, month is over...

CHX's picture

$&P $itting at 1999.8 and half an hour to go.... HAHAHAHA what a hillariou$ $hyte $how thi$ all ha$ become.

TheRideNeverEnds's picture

I am short bonds with both outright futures and short premium plus deltas in TLT against short basically everything else outside of the VIX and gold which I am long.  


[spoiler] its not working [spoiler]

CHX's picture

They can prop the bonds as high as they want and make excellent "yield" with derivatives, even as interest rates go to 0 or even nominally negative. My take is that CBs and their TBTF minions can controll all that is paper. ALL.OF.IT. But they cannot, CANNOT print phyzz, so the PM complex is the lynchpin to the whole paper tower they built. They created "paper PM" en masse, and shorted the crap out of the PM complex through COMEX, OTC derivatives, and the futures market. Hell, they  even have their own stack to scam weak-handed investors (GLD/SLV). So if you're a paper pusher and like to trade along with them, good luck and all the best. If you don't like the way they pillage and rape the publc then just stack on, or start your stack. Time and history and the "China/India put" is covering our backs.

kenny500c's picture

Next shoe to drop will be the return of the AAA rating for the U.S. With all the leverage they use there must be massive insolvency out there, will the Fed bail out the hedgies?

cathrynm's picture

They've been watching CNBC too.  "Rising Interest rates just around the corner."   Let's say that one more time.

cathrynm's picture

They've been watching CNBC too.  "Rising Interest rates just around the corner."   Let's say that one more time.

Tegrat's picture

Short treasury means that negative yeilds are positive.



Yancey Ward's picture

Well, the shorts look at all the people that got rich shorting JGBs the last 20 years, and figure that should be them! [/sarcasm]

flow5's picture

Big mistake. Roc's in MVt are decelerating based on both the seasonal trend and their distributed lag effect.

realWhiteNight123129's picture

Very small short here.... Waiting for second short entry point since 2.75%.


Hedgies are shorting the TSYs for the wrong recovery (which is not coming).

Long TSYs are wrong for the wrong reason (no recovery).

Buy a Gov bond:

If the real interest rates are positive, gov debt is low and overal credit to GDP is low (that means buy Russian Ruble bonds), trade deficit is balanced or positive and external debt is negligeable.

Short a Gov bond when the interest rates are deeply negative in real terms, the gov is insolvent, the trade deficit is chronic, the central bank is overprinting, and external debt is massive.

At some point the Hedgies will short for that reason, at that point,..... Game over.