(Bloomberg) — Fast-money wagers against longer-dated Treasuries have hit a record in a sign hedge funds are positioning themselves ever more aggressively for a steeper yield curve.

Net short speculative positions in long bond futures saw the biggest weekly climb since 2007 to reach around 209,000 contracts, according to the latest Commodity Futures Trading Commission data. Meanwhile, net long positions on 10-year Treasuries have risen to their highest since October 2017.

So-called steepener trades are often seen as bets on reflation, while investors are also positioning for the possibility of greater deficits should the Democratic party prevail in November’s election. A new Wall Street Journal/NBC News poll taken after Tuesday’s debate showed Joe Biden leading Donald Trump by 14 percentage points. It was taken before the president was diagnosed with coronavirus.



chart: Speculators long bond positions at record net-short as 10-year yields bets climb


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Speculators long bond positions at record net-short as 10-year yields bets climb

The surge in shorts appears

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By Kate Duguid

NEW YORK, Oct 1 (Reuters)Yields on longer-dated Treasury bonds on Thursday afternoon retraced earlier gains, driving the yield curve flatter, as investors waited for closely watched federal jobs data to be released Friday morning.

The spread between two- and 10-year yields US2US10=TWEB flattened to 54.3 basis points in mid-afternoon trade after having risen to a month high of 58.2 basis points earlier in the day. The swings have primarily been driven by moves at the long end of the curve. Short-term yields have been anchored by the Federal Reserve’s commitment to keeping interest rates near zero for the foreseeable future.

Though longer-dated yields rose earlier on Thursday on the prospect of progress in negotiations in Washington over a stimulus package, that move was erased by reports of a deadlock in talks.

U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin remained far from

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Background

We developed a proposed trading strategy based on the following criteria:

  • Easy to understand.
  • Limit downside risk.
  • Maximize potential returns.
  • Provide clear entry and exit points.

The devised strategy conforms to these criteria and resulted in performance that consistently beat the S&P 500 market index when backtested from beginning 1962 to April 2020. Please remember that this strategy is based on historical results and may not pan out in the future.

The Mechanics Of The Proposed Trading Strategy

The strategy utilizes the difference between short-term and long-term interest rates to predict upcoming recessions. When the difference between these rates have been negative for 3 consecutive days (also called an inverted yield curve), that is the signal to sell the S&P 500 index fund and buy gold. When the S&P 500 index reaches its previous high point, it is the signal to buy back into the S&P 500 index fund

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