Short positioning in the U.S. Treasury market is building at the fastest pace since early 2025, as traders bet the Federal Reserve will restart its rate-hike cycle tonight, according to BlockBeats.
The 10-year U.S. Treasury yield climbed Tuesday to its highest level since 2007, while the 2-year yield touched its highest point since 2024. Market pricing shows the probability of a 25-basis-point hike tonight has moved above 90%.
Bearish positioning spreads across the curve
Citi strategist David Bieber said current short positioning is already "extreme" on a tactical basis. Bank of America strategists said bearish bets have accumulated across the entire yield curve, with asset managers mostly reducing long exposure or adding shorts, and with almost no capital stepping in to buy duration at lower levels.
JPMorgan’s Treasury client survey showed client short positions jumped 10 percentage points in the week ended Sept. 14, the fastest pace of accumulation since early 2025.
Oil, inflation and deficit worries drive rate expectations
The sharp repricing has been driven by a combination of surging oil prices, rebounding inflation and concern over fiscal deficits. Jason Thomas, head of global research at Carlyle Group, warned that if the Fed does not raise rates, or if it hikes without giving clear guidance on the path ahead, traders may demand higher yields on long-dated bonds to offset inflation risk.
SOFR options see unusually large short-volatility trades
The SOFR options market has also seen unusually large short-volatility positioning. Around the 95.4375 strike, traders built sizable new exposure in December 2026 and March and June 2027 contracts. The main flow came from selling June 2027 straddles, with roughly 80,000 contracts traded over two sessions and total premium exceeding $100 million.
While a smaller group of traders has used SOFR call options to hedge a no-change outcome, the dominant pricing direction still points to front-end futures adding more downside risk premium. Skew in Treasury options also shows long-end put premiums continuing to trade above call premiums.