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Editor's Note: Below is a brief excerpt from this week's edition of Market Edges (our weekly macro newsletter). Click here to learn more about Market Edges.

Uh Oh: Wall Street's Short Treasury Bond Position Hits All-Time High... Rates Fall! - 06.14.2018 yield cartoon

Bad news for Wall Street...

Data on big bank and hedge fund positioning reveals an overwhelming majority of Wall Street is short Treasury bonds. In other words, consensus is long rates rising. Meanwhile, rates are falling. The 10-year Treasury yield has fallen -25 basis points from its May high of 3.127%.

The record net short positioning in the 5-year Treasury contract got bigger week-over-week by 33,000 contracts, according to CFTC futures and options data.

Wall Street speculators are now net SHORT 843,000 5-year Treasury contracts. In fact, net open interest SHORT bonds continues to make new all-time highs in 5-year and 10-year contracts. So, consensus is positioned for lower volatility and rates rising. 

Our view is exactly the opposite of Wall Street's short Treasury bet. In our Q3 2018 Macro Themes presentation (in June) our call was for the peak in rates. Here's what we said:

With a peak in domestic headline inflation pending in Q3, 4 hikes out of the FOMC now priced in for 2018, DM sovereign yields retreating alongside the more discrete manifestation of #GlobalDivergences (i.e. broad slowing across Europe, China and EM) and both 10Y Yields and Ag all signaling lower-highs, the consensus “bond bear market” thesis is likely to find itself under increasing scrutiny as we progress throughout 2H18.

We're more than happy to be on the other side of a growing consensus macro position with our call that the peak for inflation and long-term rates is in.

Uh Oh: Wall Street's Short Treasury Bond Position Hits All-Time High... Rates Fall! - cftc

Uh Oh: Wall Street's Short Treasury Bond Position Hits All-Time High... Rates Fall! - market edges