Key Moments
- Active benchmark funds have been maintaining short duration positions while boosting exposure to mortgage-backed securities and investment grade credit.
- Bank of America reports that short positions remain profitable across much of the U.S. Treasury curve, while most long positions are in the red except for 10-year notes.
- Bank holdings of U.S. Treasuries are higher for the year but have fallen by about $30 billion since a peak at the end of March.
Positioning Shows Preference for Short Duration
Investing.com — Active benchmark-oriented funds have been keeping short exposure to duration risk while recently directing more capital toward mortgage-backed securities and investment grade bonds, according to Bank of America.
Citing Commodity Futures Trading Commission data, Bank of America said that asset managers increased their short positions last week. The bank’s systematic strategies team also observed that slower-moving trend-following strategies have been adding to short positions.
The firm noted that these short positions are still in profitable territory. In contrast, long positions – particularly those located further out along the yield curve – are facing the risk of being closed.
Differing Behavior Across Investor Segments
Bank of America indicated that foreign official investors may be stepping in to buy during episodes of price weakness, even as many other investors remain cautious and on the sidelines. Although fund inflows picked up last week, they are still relatively modest at the front end of the curve.
Banks have increased their U.S. Treasury holdings since the start of the year, but those positions have pulled back by roughly $30 billion from a peak reached at the end of March. Milliman data cited by Bank of America shows only limited derisking activity, even among well-funded pension plans.
Futures Positioning Signals Broad Selloff Bias
Bank of America’s futures positioning proxy points to a bias toward selling across most U.S. Treasury tenors. The bank said short positions remain broadly profitable across the curve, whereas most long positions are unprofitable, with the exception of 10-year notes. These remaining profitable long positions are largely concentrated at the back end of the curve.
According to the bank’s systematic strategies team, longer-term trend-following investors are likely continuing to build short positions in U.S. Treasuries.
Positioning Overview by Segment
| Investor / Indicator | Recent Activity | Position Outcome / Bias |
|---|---|---|
| Active benchmark funds | Maintain short duration; add mortgage-backed securities and investment grade bonds | Shorts remain profitable |
| Asset managers (CFTC data) | Added to short positions last week | Shorts profitable; longs, especially further out the curve, at risk of closure |
| Slower trend followers | Adding to short positions | Aligned with broader selloff bias |
| Foreign official investors | May be buying into price declines | Contrasts with others staying on the sidelines |
| Funds (front end of curve) | Inflows increased last week | Inflows still described as light |
| Banks (U.S. Treasuries) | Holdings up year-to-date; down about $30 billion from end-March peak | Net increase for the year but recent pullback |
| Pension plans (Milliman data) | Limited derisking, even for well-funded plans | Risk exposure largely maintained |
| Futures positioning proxy (BofA) | Indicates selloff bias across most tenors | Shorts profitable across curve; longs mostly unprofitable except 10-year notes |
| Longer-term trend followers | Likely continuing to add U.S. Treasury shorts | Reinforces prevailing short positioning |
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