January 12, 2018 / 9:23 PM / 6 months ago

UPDATE 2-Speculators bet more weakness on dollar, U.S. bonds

(Recasts; adds graphics)

By Richard Leong and Saqib Iqbal Ahmed

Jan 12 (Reuters) - Speculators bet U.S. Treasuries would weaken further as the global economy improves and the Fed would hike rates more, while the dollar would deteriorate on a surging euro, Commodity Futures Trading Commission data released on Friday showed.

Speculators’ net bearish bets on U.S. 10-year Treasury note futures hit a 10-month high earlier this week, while their net positions against the greenback spiked to their highest level since mid-October.

The amount of speculators’ bearish, or short, positions in 10-year Treasury futures exceeded bullish, or long, positions by 196,853 contracts on Jan. 9, according to the CFTC’s latest Commitments of Traders data .

This was the most speculative net shorts in 10-year T-note futures since 298,514 contracts in the week of March 7, 2017.

Meanwhile, the value of the net short dollar positions, derived from net positions of International Monetary Market speculators in the yen, euro, British pound, Swiss franc and Canadian and Australian dollars, was $8.85 billion, in the week to Jan. 9.

That compares with a net short position of $4.62 billion the previous week.

The U.S. bond market has stumbled at the start of 2018 as investors have favored stocks and other growth-oriented assets over low-yielding government debt due to optimism about global economic growth.

Expectations the Fed would raise rates further, possibly three times in 2018, also have pushed yields higher.

U.S. benchmark 10-year Treasury notes’ yield hit a 10-month high on Wednesday at 2.597 percent, Reuters data showed.

Rising U.S. yields have often help to support the dollar, but that relationship has weakened since late last year on speculation the European Central Bank would not renew its 2.55 trillion euro bond purchase program that will expire in September.

The correlation between the dollar and the two-year Treasury yield hovered at its most negative level since July 2016, Reuters data showed.

The dollar index fell to a three-year low on Friday, led by strength in the euro and sterling, while the two-year yield hit its highest since September 2008.

Reporting by Richard Leong; editing by Jonathan Oatis and Lisa Shumaker

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