Treasury Futures Shorts Build as Traders Await Inflation and Jobs Data

Short positions in five- and 10-year Treasury futures have built over roughly two weeks, which could increase the risk of a sharp reversal if economic data weaken or Federal Reserve officials take a more dovish stance.

The 30-year Treasury yield recently reached its highest level since 2002 as a surge in corporate bond supply and elevated energy prices worsened selling sentiment. The move encouraged further bearish positioning in government bonds.

Open interest in five- and 10-year Treasury futures rose substantially over roughly two weeks. Asset managers added more than 100,000 short 10-year Treasury futures positions in the week ended Sept. 22, one of the largest weekly increases since 2023.

Five-year positions increased on 11 of the past 12 trading days, while 10-year positions rose on 13 of the past 14 sessions. The two contracts added about $32 million in combined exposure per basis point, equivalent to roughly $75 billion in five-year cash Treasuries.

Positioning remained tilted toward higher yields, with short positions in shorter- and intermediate-term maturities still profitable. Commodity trading adviser trend signals also continued to show firm bearish positioning in Treasuries.

The buildup may not consist entirely of outright directional bets. Some positions may be basis trades against cash Treasuries or hedges on bond holdings, adding complexity to the market structure.

Options markets have also reflected demand for protection against further increases in yields. The put skew for long-term Treasury futures options rose to its highest level since August, while some short-hedging positions are due to expire at the end of the week, including exposure to Friday’s nonfarm payrolls report.

Economists expect September nonfarm payrolls to rise by about 90,000, down from an unexpectedly strong increase of 162,000 in August. Weaker-than-expected data could prompt traders to unwind crowded short positions.

Treasury client positioning for the week ended Sept. 28 was little changed, while long positions remained at their highest level since November. That remaining long exposure could support short covering as the market assesses Friday’s report.