Huge Short in TLT

April 6th, 2021 1:04 pm | by John Jansen |

Short Bets in $14 Billion Treasury ETF Say Yield Calm Will Break
2021-04-06 16:17:24.422 GMT

By Katie Greifeld
(Bloomberg) — As Treasury yields stall near their
prepandemic highs, investors are wagering that the tranquility
will be short-lived.
Short interest in the $14 billion iShares 20+ Year Treasury
Bond exchange-traded fund (ticker TLT) has climbed to about one-
fifth of the shares outstanding, the highest since early 2017,
according to data from IHS Markit Ltd. Bearish bets have risen
from 7% at the start of 2021 amid the fund’s 13% year-to-date
drop.
While the bond selloff that’s hammered TLT appears to have
leveled off with 30-year yields hovering near 2.4% for the
better part of a month, the surge in short bets suggests
investors don’t expect the calm to last long. Though yields have
already moved “significantly” after the market aggressively
repriced a brighter growth outlook, turbulence is likely to
return as economic data is released over the next few months,
according to Principal Global Investors.
“This period of calm is likely short-lived,” said Seema
Shah, the firm’s chief strategist. “We expect investors to
grapple with the higher inflation and growth environment
repeatedly through 2021. Each piece of strong economic and
inflation data will unnerve investors again, driving volatility
higher.”
Investors have pulled almost $2.6 billion from TLT so far
in 2021, putting the fund on track for the worst year of
outflows since its inception in 2002. Upgraded growth forecasts
and climbing inflation expectations have dragged down long-
duration funds such as TLT and the $40 billion iShares iBoxx $
Investment Grade Corporate Bond ETF (ticker LQD), which posted
its biggest one-day outflow on record last week.
The ICE BofA MOVE Index, a gauge of U.S. bond volatility,
has eased to roughly 62 from a peak of 76 reached in late
February, the highest level in 11 months. While the bond market
is in a “holding pattern” after positioning for much more robust
economic growth, the next catalyst will come from whether or not
the data ultimately deliver, according to Richard Bernstein
Advisors LLC.
“Treasuries have largely priced the current Covid stimulus,
the promise for infrastructure, and an economic recovery,” said
Michael Contopoulos, the firm’s director of fixed income and
portfolio manager. “The next leg will be determined by hard data
— actual increases in inflation, more than just promise for
better days. Over the course of the year and in 2022, we should
expect more volatility and trending higher rates.”

–With assistance from Olivia Raimonde.

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