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(Repeats Monday story without changes. The opinions expressed here are those of the author, a columnist for Reuters.)
By Jamie McGeever
LONDON, July 30 (Reuters) - Struggling for returns this year, hedge funds are throwing caution to the wind, building up record bets on higher U.S. Treasury yields across the curve and increasingly large bets on a stronger dollar.
Either these wagers pay off, especially in fixed income, or for speculators, things may be about to go "pop".
The latest data from U.S. futures exchanges show that hedge funds and speculators last week accumulated a record short position in five-year, 10-year, and 30-year Treasuries futures, and also expanded their short position in two-year notes.
Commodity Futures Trading Commission figures show they now hold a record net short position of 715,965 contracts in five-year Treasury futures, 509,498 contracts in 10-year futures, and 212,674 contracts in 30-year futures.
It's been a tough year for hedge funds, particularly in the "macro" space of interest rates and currencies. The U.S. Federal Reserve, far and away the global leader in removing crisis-era stimulus, has raised rates twice this year and has indicated it will deliver another two increases before 2019.
But the muted rise in longer-dated bond yields shows investors are sceptical the U.S. economy can take many more rate hikes, and that the Fed may even have to start cutting rates in the not-too-distant future.
The U.S. economy has entered its 10th year of expansion, the second longest on record. Unsurprisingly, the likelihood of recession in the next year or two is increasing, as shown by the yield curve flattening to within 24 bps of outright inversion.
According to Eurekahedge, hedge fund returns in the first six months of the year were just 0.05 percent across all strategies. The CTA/managed futures index, which include CFTC-related rates and FX bets, was down 1.99 percent, and the macro fund index was down 0.29 percent.
The fixed income index was up 0.33 percent in the first six months of the year, but down 0.37 percent in the three months to June.
CFTC data show that hedge funds and speculators have grown their net short position in 10-year Treasury futures by 425,832 contracts so far in 2018, on course for a calendar year record, while the 30-year net short has doubled this year.
Long yields haven't risen much, however, certainly not as much as these short positions would suggest hedge funds had hoped. The 10-year yield is up around 55 bps and the 30-year yield around 35 bps, struggling to break above 3 percent and 3.2 percent, respectively.