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Hedge funds have broadly missed the U.S. yield curve flattening trade that has dominated world markets in recent months, but appear to be part of the growing consensus bet that interest rates will rise earlier next year rather than later.

Commodity Futures Trading Commission data for the week to Dec. 7 shows that funds extended their net short three-month Eurodollar position to 1.375 million contracts, the largest net short since February, 2019.

Short-dated Eurodollar futures are often regarded as a proxy for traders’ view on the federal funds rate, the Fed’s benchmark interest rate. Shorting, or selling, these contracts imply higher rates, while going long implies the opposite.

The last time funds held a substantial net short position for a significant period of time was 2017-18, the two-year period of the Fed’s last interest rate-raising cycle.

The drum beat for an earlier liftoff on rates is getting louder. Fed Chair Jerome Powell’s admission on Nov. 30 that inflationary pressures should no longer be deemed ‘transitory’ was followed last week by the highest annual inflation print since 1982.

The fed funds futures market now fully expect the first rate hike to come in June, and is attaching a 90% probability on the Fed moving three times next year. Some economists say liftoff will be in March.

The Fed meets this week and may discuss speeding up the reduction of its $120 billion per month bond buying program. Completing the so-called ‘taper’ before mid-2022 would open up the possibility of an earlier move on interest rates.

“The hawkish Fed pivot suggests risks of further curve flattening and further pull forward of rate hikes. We suggest investors don’t fight the Fed,” Bank of America’s U.S. rates strategy team wrote in a note last week.

Hedge funds will be hoping their short-term rates plays come good, because their broader trades in the macro space lately have been less than stellar.

Hedge fund data provider HFR’s Macro Index fell 2.36% in November, its biggest monthly fall since February 2018, and the second largest since July 2008. It has only had nine worse monthly performances since the index was launched 31 years ago.

October and November saw all parts of the U.S. yield curve flatten, in some cases by historical proportions. CFTC data suggest that hedge funds have missed the trade, and HFR’s Macro Index heavy losses appear to back that up.

The latest CFTC data show how poorly hedge funds have played this move. During the week to Dec. 7, they more than doubled their net long 2-year Treasuries futures position to 32,605 contracts versus the previous week, a fairly modest size but the largest net long in four months and third largest in four years.

While funds have been reducing and reversing their net short 2-year Treasuries position in recent weeks, the 2-year yield has risen to around 0.7% from 0.4%.

Funds also cut back on their net short position in 10-year Treasuries futures for a second week, this time by 46,375 contracts to 267,006 contracts.

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