Short positions in TLT, the popular 20-year US Treasury Bond ETF, have spiked to over 130 million shares, up from 107 million last month. TLT has 541 million shares outstanding. Consequently, the short interest has risen from 20% to 24% of the float. Furthermore, TLT’s days to cover ratio (short position/average trading volume) is nearly 3.5 days. As the graph below shows, that is far and away the most prominent short position in the ETF in at least the last 15 years.
So what does this tell us? For starters, it helps explain why bond yields have been trending higher. The narratives driving the bets for higher yields include inflation due to tariffs and disappointment over the current deficit spending proposals floating around Congress. However, while the narratives are concerning, the trade is extremely crowded.
Furthermore, the narratives are based on expectations, not facts. Most large stocks and ETFs typically have short interest ratios of five or below. This extreme instance could set the stage for a significant short squeeze if yields fall, economic conditions weaken, or the narratives change.
As the old saying goes, when everyone is on one side of the boat, move to the other. See the Tweet of the Day for another example of a crowded trade.
What To Watch Today
Earnings
- No notable earnings reports today
Economy
The Week Ahead
We get a break this week after a hectic week of economic data. With little data, investors are likely to focus on Fed speakers. In particular, has the recent round of inflation data eased their tariff-related inflationary concerns? Powell will speak on Sunday, May 25th. On Thursday, the release of the Chicago Fed National Activity Index (CFNAI), which comprises 84 indicators, will help us better assess the economy’s health. Thus far, as shown below, the index doesn’t signal that poor sentiment and tariffs are weighing on economic activity.
Tweet of the Day
