If you’re thinking ‘higher for longer,’ you’re not alone. But here’s a short-term path to a consensus buster…
Leveraged funds just pushed their net short in SOFR futures to a record -2.5 million contracts. The most extreme positioning in the nearly six-year history of the data.
To short SOFR is to bet short-term rates stay higher for longer, or climb from here. After the strong payrolls print, the crowd piled in.
The speed is the story. Roughly -0.5M contracts a few months ago. -2.5M today.
Here’s the catch.
Record one-sided positioning could set up a violent short squeeze. Everyone leaning the same way means there’s no one left to sell to.
…a soft CPI print.
…a weak jobs report.
…a dovish Fed comment.
Any of those, and the unwind of these shorts could fire off one of the sharpest rallies in short-term rates in years.
[Kudos to ‘Fixed Income Beacon’ on Substack for spotting this.]
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