The 10-year is once again testing a critical overhead ceiling of resistance at 4.335%.
When 10-year yields move higher, the corresponding price moves lower. Investors that want to bet on the 10-year price moving lower and yield moving higher can go “short” or sell 10-year Treasuries in the derivatives markets without owning it. Currently the short interest in 10-year Treasuries has risen to $800 Billion, which is up 20% in just the last month alone…meaning there are a ton of investors short.
Remember these investors don’t own 10-year Treasuries, and since they are short them, they must buy 10-year Treasuries when they want to eventually close out their position. If there is a catalyst and price moves higher, causing yield to move lower, there could be a rush to close out these positions before they start giving back their gains or losing money. This is called a “short squeeze,” where massive amounts of these positions must be closed out by buying 10-year Treasuries, causing the price to go up and yield to go down.
One of those catalysts could be this week’s Jackson Hole Symposium, which starts on Thursday. This is a meeting in Jackson Hole Wyoming, where central bankers from around the world meet. It has historically been a place where our Fed has made big policy changes or announcements. We know the Fed has been extremely hawkish – Will they change their tone at this meeting or remain data dependent with a lot of time until their September 20 meeting?
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