RPT-COLUMN-Speculators take record bet Fed will pull rate trigger soon: McGeever

From Reuters - February 26, 2018

(Repeats Feb 26 column; no changes to text)

By Jamie McGeever

LONDON, Feb 26 (Reuters) - Hedge funds and other speculators are making their biggest ever short-term bet on higher U.S. interest rates, a clear sign that the vol-mageddon bout of market turbulence earlier this month has almost completely fizzled out.

Speculators are also slowly beginning to rebuild their bets on lower U.S. stock market volatility, according to the latest positioning data from the Chicago futures exchanges, potentially offering another source of support to risky assets globally.

How long the renewed sense of calm lasts remains to be seen. But the fast money investment community is quickly reverting to the Goldilocks scenario of solid U.S. economic growth gradually increasing inflationary pressures and the need for higher rates. All in a world of low market volatility.

World markets were thrown into a tailspin a few weeks ago when U.S. wage growth figures sparked fears that the Fed was behind the curve and would need to jack up borrowing costs far more aggressively than previously expected.

A record surge in volatility and $4 trillion plunge in world equity markets quickly followed. Ironically, this suddenly opened up the possibility that the Fed might delay or slow down its rate-hiking cycle.

The latest positioning data from the Chicago Board of Trade and Chicago Board Options Exchange show that rate expectations are firmly back on track. In fact, they were never really properly derailed in the first place.

The amount of speculative net short positions in Eurodollar futures rose to a record 3.65 million contracts in the week ended Feb. 20, according to the Commodity Futures Trading Commission.

That was an increase of more than 245,000 contracts from the previous week, the sixth straight weekly rise in net short positions. A further increase of just 41,934 in the next batch of figures will mean February will have recorded the biggest monthly shift ever towards bets on higher rates.

A short position on an asset is effectively a bet it will fall in price. In interest rate and bond markets, prices move inversely to yields, so a short position is essentially a bet on higher borrowing costs.


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