The stance dating back to 18 September and reaffirmed on 22 September was specific: leveraged funds kept adding to a 2-year Treasury short even as the note's yield sat at the top of its own range. Either a soft auction or a stalling Fed path could unwind that position sharply. Neither happened. The Commitments of Traders report for 22 September shows the net short at 1,357,108 contracts, down 35,464 contracts from the prior week. That is a reduction in the short, not an extension. It is the first weekly pullback this desk has recorded in this position since it started watching it. But the retreat is modest set against a book still in the upper reaches of its three-year range.#
Set against that positioning is a rates market that has not shifted policy direction. Fed funds futures price the policy rate 78.5 basis points higher over 12 months, not cuts. That gap sits well above the FOMC's own 2.8% committee mean.#
A leveraged short built against a hiking path has stopped growing, but the path it bet against has not bent either. The position's own logic, a firmer Fed and a higher-for-longer front end, is still intact even as the crowd trims the size of its wager.#
The news flow on 30 September complicates the picture at the margin. Traders have trimmed bets on an October Fed hike, with one wire putting the probability at 34.9% against 44.8% before the US PCE data. A separate item frames the same move as 'weaker than expected PCE reduces Fed rate hike bets.' Fed's Williams is quoted saying there is 'no urgency' on Fed action, and separately that he does not believe rising yields signal a shift in longer-run inflation views. None of that has moved the 12-month priced path, which remains 78.5 basis points higher, not lower. Traders trimming odds of an October move is a near-term timing question. The futures curve's 12-month path is a separate, still-firm read on the destination.#
The auction did not break the short, and the priced path has not reversed. The 18 September thesis is not falsified. It is, however, no longer building: the 35,464-contract reduction is the first crack in a position that had been growing for at least three straight reporting weeks. The desk is now watching whether that single week of paring becomes a trend into the 02 October non-farm payrolls release, where the forecast stands at 90K against a previous 162K. A weak print that pulls the 2-year yield toward 4.60% without the short accelerating its own covering would be the cleaner signal that positioning, not just data timing, is starting to give way.#
