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Treasury shorts fall out of favor

Short positions in five- and 10-year Treasury futures contracts fell 30% in November from the end of the third quarter after reaching record highs at the end of September. Short positions in two-year contracts also hit a record high in October and fell 5% over the following month.

Investor sentiments in the third quarter were driven by surging yields -- the 10-year jumped from 2.81 on Aug. 24 to about 3.1 by the end of September -- as well as strong equity returns. Those sentiments were abruptly reversed at the start of the fourth quarter as equities fell sharply, forcing the Fed to consider shelving plans for near-term rate hikes.

Despite this apparent reversal in Treasury sentiment, the CME Group's FedWatch tool currently estimates a 78.4% probability that the Fed will raise the target rate at its Dec. 19 meeting. That probability, however, fell from 82.7% one week ago.