Betting on "interest rate cut transaction", the leverage position of US debt reached a record high.

On the eve of Federal Reserve Chairman Powell's important speech this Friday, the leverage position of US debt reached a record high. Bond traders are taking record risks and making bold bets. The Federal Reserve is about to start the interest rate cut cycle for more than four years, thus pushing the bond market up.

On August 21st, according to the data of Chicago Mercantile Exchange (CME), the number of open positions (both long and short) of 10-year Treasury futures in the United States soared to an all-time high last week, approaching 2,300 futures contracts. According to the analysis, this means that whenever the yield of spot treasury bonds changes by one basis point, the risk faced by the market is as high as about $1.5 billion.

At the time of the recent surge in leveraged positions in US debt, bullish bets on US debt have increased significantly in the past few weeks. They bet that the Fed will cut interest rates sharply between this year and 2025. According to the data of the Commodity Futures Trading Commission (CFTC), as of the week of August 13th, asset management companies expanded the net long position of about 120,000 10-year Treasury futures.

Although most leveraged positions come from asset management companies doing multi-national debt futures, some risks also come from basis trading. This is a common strategy used by hedge funds, and traders profit from the spread between spot treasury bonds and futures. Since this strategy involves borrowing through the repo market, if the borrowing conditions are tightened, traders may be forced to sell their positions quickly to repay the loans, and may trigger violent fluctuations in the national debt market.

Traders are full of anxiety about the timing and extent of the Fed's interest rate cut, and they are betting on various scenarios that may occur this year. Just two weeks ago, the swap market once predicted that the Fed might cut interest rates by 50 basis points at its September meeting, or even cut interest rates urgently during the meeting. However, with the emergence of signs of economic resilience, the market's expectation of a sharp interest rate cut has cooled down. At present, it is generally expected that the interest rate cut will be 30 basis points in September.

Powell's speech this Friday may set the tone for cutting interest rates. On Friday, August 23rd, local time, Powell will deliver an important speech during the annual central bank meeting in Jackson Hole, Wyoming, USA. Wall Street expects Powell to take this opportunity to confirm that the Fed will cut interest rates. At present, traders generally expect the Fed to cut interest rates by September, but they are not sure about the rate cut.

Risk warning and exemption clause

The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.