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Short Treasuries in vogue as 10-year moves to 3%

The number of 10-year Treasury contracts sold short reached almost 1.2 million as of Aug. 14 according to the most recent data from the Commodity Futures Trading Commission. That holds as a historic record, of which 10 have been set so far in 2018. Relative to the 52-week average, the current number of short contracts is 324,531 contracts higher, a jump from the prior week's reading of 230,176 contracts above average, but still below the gap seen in May at just less than 360,000 contracts.

Spikes in short Treasury interest have occurred as the yield approaches 3% and declined just as rapidly when it dips. The upward trend of bets against the 10-year bond comes at the same time investors have been exiting U.S. equity strategies in favor of bond strategies; Morningstar data show net flows of about $83 billion into taxable bond funds through July 31. The disconnect might be tied to corporate bond spreads, which have been declining, suggesting that some more aggressive investors are hedging out yield risk in favor of credit risk.