US Rates Watch: Caught between a strait and a Warsh place

Research evidence excerpt

US Rates Watch: Caught between a strait and a Warsh place

CTA shorts at risk

Our systematic strategies team sees CTA shorts most concentrated in the front end, but

the yield decline last week brought buy-to-cover triggers closer. If rally extends this

week, trend follower short covering could occur (see: Systematic Flows Monitor).

Foreign official selling persists

Fed custody holdings fell another $23bn last week; YTD sales now total >$90bn. Pace of

selling picked up since late Feb, but flows go beyond simple FX rebalancing. Since April

’25, custody holdings are down nearly $300bn alongside a ~5% drop in the dollar—

historic correlations would have implied rebalance buying (Exhibit 26). Holdings drop

points to active reserve diversification away from USD.

High yields pulled in pension demand

Japanese private demand in May was pension-led (Exhibit 25 & Exhibit 33). 30y yields

near 5.20% (post-GFC highs) drew buyers, echoed by elevated stripping (Exhibit 66).

Even into the selloff, long-end levels attracted real money demand.

Long-end outflows continue

Fund inflows remain solid, driven by Agg funds (Exhibit 35). Within USTs, flows stay

front-end biased; long-end funds continue to see outflows. This tilt has persisted all year

and likely intensified from the recent bear flattening (Exhibit 37).

Funds add duration, cut credit overweight

Active funds significantly added duration last week to flat vs benchmark (Exhibit 41 &

Exhibit 42). Funds also closed IG overweight and trimmed MBS in recent weeks (Exhibit

45& Exhibit 46). Our IG strategists stays constructive; they view Iran resolution as a

marginal tailwind (see: IG Credit Strategist: Positioning for Iran resolution 12 June 2026).

2 US Rates Watch | 14 June 2026