Bond traders have not been this speculatively short Treasuries since early 2010. Since The Fed turned uber hawkish at the last FOMC, and convinced the market that it will raise rates in December – despite dismally dropping data everywhere, speculators have drastically increased their short positions across the entire Treasury spectrum. The last time the world was this short Treasuries, the 10Y yield collapsed from 3.94% to 2.39% in just 3 months.

(Chart shows aggregate net short speculative positioning across the entire Treasury futures curve – rebased to 10Y-equivalents)

Simply put, The Fed has created – through its constant communication and confusion – the biggest bear trap for bond traders… if a hike does not come in December, 2010’s yield collapse could look like a stroll in the park, especially in the newly illiquid normal.

Charts: Bloomberg