(Bloomberg) — Bond traders exited wagers in futures and cash Treasuries in the past week, turning more neutral as brinkmanship around tariffs clouded the outlook for the economy and the Federal Reserve and threatened to boost turbulence.
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In Treasuries futures, traders unwound positions across shorter maturities on Monday by the most since November as the looming kickoff of President Donald Trump’s levies roiled markets. Meanwhile, investors in cash Treasuries have pulled back sharply from the biggest net long stance in almost 15 years, JPMorgan Chase & Co.’s latest client survey shows.
The start of this week showed the risk of carrying stretched positions around tariff deadlines. As traders braced for US levies to take effect Tuesday, short-dated Treasury yields surged and rates on longer maturities sank, signaling that investors were worried the levies would fuel inflation and slow the economy. Much of that move then reversed as the president agreed to pause tariffs on Mexico and Canada.
“You have to be super careful about whatever your story of the economy is — you’ve got to be careful about actually putting money to work behind it,” said Ed Al-Hussainy, a rates strategist at Columbia Threadneedle Investment. “A lot of people have become much more neutral on duration and not wanting to take that volatility.”
All the developments around tariffs left traders hedging various scenarios linked to the next Fed policy meeting, in March. In options linked to the Secured Overnight Financing Rate, which closely tracks the central bank’s policy path, Monday’s action was dominated by a mix of dovish and hawkish hedging for the March 19 rate announcement.
Swaps rates are currently pricing in just three basis points of easing into the meeting, or a bit more than a 10% chance of a cut, mirroring policymakers’ recent signals that they’re not in a rush to cut rates again as they monitor the policy mix of the new administration. However, elevated activity around the April SOFR options contracts signals that traders see the potential for the market outlook to shift in the coming weeks.
Here’s a rundown of the latest positioning indicators across the rates market:
JPMorgan Treasury Client Survey
In the week to Feb. 3, a sharp positioning swing among JPMorgan clients’ saw their outright shorts jump 10 percentage points, the largest increase since 2019, while long positions tumbled. As a result, the all-client survey now shows the smallest net-long stance since December.
