Leveraged funds’ net short positions in two-year Treasury futures have fallen more than 40% from their 15-month March high and more than half from the December 2024 record. Asset managers’ corresponding net longs are down more than 30% from their March peak. That second move is important: this is not simply hedge funds fleeing leverage. The cash-futures spread has narrowed as dealers gained more capacity to warehouse Treasury inventory, while real-money demand for futures weakened. The relative-value opportunity is smaller even before funding costs and margin volatility.
The remaining position is still large—market estimates put basis exposure around $1.2 trillion—so the systemic tail has not vanished. But a smaller trade built on less one-sided end-user flow should transmit less violently through repo and futures margins during the next shock. The more interesting question is who absorbs Treasury supply if this balance-sheet-intensive private intermediation keeps retreating; “safer basis trade” and “easier Treasury financing” need not arrive together. Reuters report syndicated by Kitco · CFTC Commitments of Traders