(The opinions expressed here are those of the author, a columnist for Reuters.)
* CFTC sterling positioning: reut.rs/2yAYf6k
* CFTC dollar positioning: reut.rs/2z8UUbw
* CFTC 2y Treasuries positioning: reut.rs/2yBs6LC
By Jamie McGeever
LONDON, Oct 9 (Reuters) - Struggling to make money amid ultra-low market volatility, misfiring hedge funds are sticking to their guns with their currency and bond bets on a weaker dollar, stronger UK pound and rising U.S. interest rates.
The latest futures market positioning data from the Chicago Mercantile Exchange, however, suggests the two foreign exchange trades of that trio will be giving fund managers some sleepless nights.
Hedge funds and other speculators are at their most bullish in over three years on sterling, just as the currency has registered its biggest weekly fall in a year.
Their bets on a weaker dollar - the largest net short dollar position since January, 2013 - were largely unchanged in the latest week. But the greenback is on the up, and has appreciated four weeks in a row, or almost 4 percent from its Sept. 8 low.
Their short-term U.S. bond market bets appear to be more fruitful. Just as another U.S. rate hike this year seems a nailed on certainty, the short position on two-year Treasuries is the largest since late July, and has been larger in only seven other weeks since comparable records began in 1995.
The most eye-catching of these three trades’ positioning last week was sterling. According to the Chicago Futures Trading Commission, hedge funds and other speculators were net long sterling to the tune of 19,949 contracts in the week to Oct. 3.
That’s the most bullish bet on the pound since September, 2014, just before the Scottish independence referendum. Political instability, the Brexit vote and latterly a slump in UK growth has ensured a virtually unbroken short position since.
The question now is whether hedge funds stick with their new-found enthusiasm for the pound, or revert to their default bearish stance.
Prime Minister Theresa May is under intense pressure following a disastrous showing at her party’s annual conference last week, and the Bank of England appears set on raising rates just as the economy has gone down another gear.
That’s the backdrop to the pound’s worst week in exactly a year. It fell 2.5 percent against the dollar last week and more than 2 percent on a trade-weighted basis.
Hedge funds’ dollar bets haven’t gone well recently either. Their net CFTC short dollar position against a wide range of currencies was worth an estimated $21.01 billion in the latest week, virtually unchanged from $21.13 billion the week before.
That was the biggest net short position since January, 2013, according to Reuters calculations. Yet the dollar has risen for four straight weeks as Fed chair Janet Yellen and her colleagues have put another rate hike this year firmly back on the table.
Money markets now put an 80 percent likelihood on a rate rise in December. Hedge funds haven’t changed their FX bets accordingly, even though they are betting fully on short-term U.S. bond yields going up.
The net short two-year Treasuries position - a bet that short-term yields will go up - was increased in the latest week to 226,840 contracts, the biggest since late-July. It’s only been bigger seven weeks in the CFTC’s 22 years of tracking this data - four in July this year and three in May 2007.
The two-year yield last week hit a nine-year high of 1.528 percent. Some immediate interest rate relief for hedge funds’ FX ills.