US Rates Watch: Bifurcated market

Research evidence excerpt

US Rates Watch: Bifurcated market

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US Rates Watch

Bifurcated market

A tale of two buyers 19 July 2026

Positioning remains mixed but still leans toward higher rates. Active benchmark funds

continue to run largely neutral curve and duration exposure, preferring to express risk Rates Research

United Statesthrough higher IG credit exposure despite lingering supply concerns. By contrast, CTAs

remain meaningfully short at the front end, with scope to add shorts further out the

curve. Our futures positioning proxy also continues to point to selloff risk, reflecting a MeghanRates StrategistSwiber, CFA

high concentration of out-of-the-money longs. BofAS

meghan.swiber@bofa.com

Flows tell a similarly bifurcated story. May TIC data showed strong private-sector Eleanor Xiao

Rates Strategist

demand as investors stepped in at the highest yield levels in over a year, while foreign BofAS

official accounts continued to sell amid FX intervention activity. More recent custodial eleanor.xiao@bofa.com

holdings data suggests official-sector selling remains ongoing. Domestic banks were US Rates Research

BofAS

also less supportive in Q2 than in Q1, likely reflecting a flatter front-end curve and richer

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UST valuations on asset swap.

Exhibit 1: Curve-o-meter

Rates to trade like positioning is modestly long and neutral curve CFTC: Commodities Futures Trading

Commission

CTA: Commodity Trading Adviser

FV: Treasury 5Y contract

ITM: In the Money

MBS: Mortgage Backed Securities

OTM: Out of the Money

US: Treasury 20Y contract.

UST: Treasury Security

Source: BofA Global Research, Note: dial shows duration = average 5y percentiles of CTA positioning + net OTM position implied from SF: SOFR Futures