A Historic Treasury Short Is Building and the Next Fed Move Could Trigger a Squeeze

• The current US Treasury futures short position of 1.97 million contracts may be the most crowded in history, with total ETF short interest at $12.4 billion
• China has reduced its Treasury holdings from a peak of $1.32 trillion in 2013 to $682.6 billion as of November 2025, selling roughly $700 billion since 2016
• Economists expect a 25-50 basis point move could occur shortly, though panicky short covering could trigger moves of 20+ basis points per day, potentially forcing margin calls and liquidations

Market Summary: Historic Treasury Short Position Risks Major Squeeze

Key Development:

A potentially unprecedented short squeeze is building in U.S. Treasury markets, with current short positions reaching historic levels that could trigger violent price movements if the Federal Reserve acts.

Critical Data Points:

• Treasury futures short position: 1.97 million contracts (possibly a historical record)
• Total ETF short interest: $12.4 billion
• Treasury Bill short interest: 89,585 contracts
• Long bond yield: approximately 4.85% (near September 2025 levels)
• Fed funds rate: currently 3.5%-3.75% after three quarter-point cuts in late 2025
• China's Treasury holdings: $682.6 billion (down from $1.32 trillion peak in 2013)

Market Context:

The short buildup stems from multiple factors including inflation concerns (peaked at 9.0% in June 2022), currency debasement fears, and China's ongoing divestment of roughly $700 billion in Treasuries since 2016. Leveraged ETFs maintain substantial short positions on 10-year and 30-year futures for liquidity purposes.

Potential Catalysts for Squeeze:

• Trump administration reportedly reversing inflation trends
• Tariff revenue strengthening the dollar and reducing trade deficits
• Recent 20-year Treasury auction exceeding expectations
• DOJ investigation into Fed Chair Jerome Powell potentially accelerating his retirement
• The $12.6 trillion repo market could amplify covering pressure
• Margin calls on hedge funds and ETFs could force panicked buying

Market Implications:

Analysts anticipate a 25-50 basis point move could occur imminently, with potential for 20+ basis point daily swings if short covering intensifies. This represents rare volatility for traditionally stable Treasury markets, with implications across the entire fixed income sector.

Reference: Historical comparison drawn to George Soros's successful British Pound short, which netted $1 billion profit.