Goldman Sachs believes that the Treasury's expansion of long-term bond repurchase agreements will, in the short term, create two-way risks for the already crowded long-term bond short positions and steepening yield curve trading.
Previously, many investors were accustomed to expressing their bearish view on duration by shorting long-duration bonds and betting on a continued steepening of the yield curve; with this policy signal, the previously near-one-sided trading is now facing forced adjustments.
Charts show that leveraged funds' short positions in US Treasury futures have accumulated significantly since 2022, covering multiple maturities including 2-year, 5-year, 10-year, and long-term US Treasuries. Although these short positions will have declined from their peak by August 2026, their overall size remains significantly higher than the normal levels of previous years. If policymakers continue to signal a willingness to manage long-term pressures, short-term volatility in the long-term bond market may stem more from position rearrangements than from fundamental changes.
