The big short: Fund managers warn of 'risky' Treasuries trade despite rising rate environment

Amid record short positions

Fund managers have cautioned on shorting US Treasuries despite the Federal Reserve's plans to hike rates and taper its $4.5trn balance sheet, pointing to overcrowding and conditions remaining "a long way off" interest rate normalisation.

A JP Morgan Chase & Co survey on 2 October found 44% of clients had placed short positions in Treasuries against their benchmarks. This is the highest number since 2006, and a jump from 30% the previous week. Since hitting a low for 2017 of 2.05% on 8 September, prior to the Fed's announcement of plans to begin its balance sheet reduction, 10-year Treasury yields have since risen to 2.32% as at 23 November. This is close to the 2.4% yield barrier flagged by veteran bond investor Bill Gross as the threshold for a possible bear market in bonds (see graph below). Furthermore, the yiel...