--- title: "US Treasury Bulls Capitulate En Masse: CTA, Asset Managers, and Japanese Investors Retreat Simultaneously as a Larger Storm Brews!" type: "News" locale: "en" url: "https://longbridge.com/en/news/286874184.md" description: "Bank of America believes that bulls in the US Treasury market have suffered a comprehensive defeat: CTA short positions are stretched to the limit, asset management firms continue to increase shorts or close out longs, and Japanese private investors have net sold over $30 billion in US Treasuries for two consecutive months. A greater threat comes from potential Japanese foreign exchange intervention—possibly reaching tens of billions of dollars, implying US Treasury selling pressure of $40–50 billion" datetime: "2026-05-19T07:57:06.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/286874184.md) - [en](https://longbridge.com/en/news/286874184.md) - [zh-HK](https://longbridge.com/zh-HK/news/286874184.md) --- # US Treasury Bulls Capitulate En Masse: CTA, Asset Managers, and Japanese Investors Retreat Simultaneously as a Larger Storm Brews! The US Treasury market is experiencing a rare capitulation by bulls. On May 19, according to Zhuifeng Trading Desk, the latest research report from Bank of America Merrill Lynch (BofA) stated that bulls on the US Treasury yield curve have completely surrendered, leaving only a tiny amount of out-of-the-money (OTM) residual positions, while bears currently hold absolute dominance with most positions in-the-money (ITM). The bank’s US Rates Research team pointed out in its "US Rates Watch" report that funds across the board—from systematic trend followers (CTAs) to global active asset managers, and further to Japanese private and official investors—are synchronously adjusting their positions, withdrawing from or shorting US Treasuries. > Commodity Trading Advisors’ (CTA) short positions are stretched to the limit, asset management institutions continue to increase shorts or close out longs, Japanese private investors have net sold US Treasuries for two consecutive months, and potential yen intervention operations could bring implicit selling pressure of up to $40 billion to $50 billion. However, behind this major reshuffling of positions, rising yields are attracting capital to flow back crazily into the short-end and credit bond markets. Meanwhile, analysis points out that the "Sword of Damocles" hanging over the market is the potential large-scale foreign exchange intervention by the Bank of Japan—if the scale of intervention expands further and triggers official selling of US Treasuries, the global fixed-income market will face a true storm. ## **CTAs and Asset Managers Turn Bearish Across the Board, Short Positions Approach Limits** The reversal in market positions has been extremely dramatic. Data from BofA’s Systematic Strategy team shows that **CTA (Commodity Trading Advisor) short positions across the entire yield curve have reached their limits, and in recent weeks, the focus of shorting has shifted from the short end to the long end.** > Future position changes will be highly dependent on volatility: if futures continue to fall due to declining volatility, shorts may continue to expand; but if volatility rises, shorts are expected to retreat. > > At the same time, global asset management companies are also rapidly shortening duration. Last week, asset managers mainly increased shorts or closed out longs, with net short positions increasing across all maturities except for 20-year (US) and 30-year (WN) Treasuries. > Active benchmark aggregate funds (Agg funds) currently maintain an "Underweight" position on US Treasuries, while maintaining an "Overweight" position on Mortgage-Backed Securities (MBS) and Investment Grade bonds (IG). The biggest change over the past month has been the continuous rise in the overweight ratio for investment-grade bonds. This spread overweight strategy has supported the outperformance of active funds against US Treasuries since early April. ## **Japanese Capital Continues to Retreat, Shadow of Hundred-Billion-Dollar FX Intervention Looms Over US Treasuries** The dynamics of foreign investors have added another layer of significant risk to the US Treasury market, especially the movements of Japanese capital. Data from the Japanese Ministry of Finance (MoF) shows that following a $18 billion sell-off in February, **Japanese private investors continued to net sell $14 billion worth of US Treasuries in March**, with banks leading the selling, while pension funds and life insurance companies also participated actively. The core reason is that for Japanese investors, after three months of rolling foreign exchange hedging, the yield of 10-year US Treasuries compared to Japanese Government Bonds (such as 20-year JGBs, with a spread of -2.09%) remains in an extremely negative range. **Even more worrying to the market is the potential for official Japanese foreign exchange intervention.** BofA FX strategists estimate that the scale of intervention funds recently suspected of supporting the yen was approximately $72 billion (potentially the largest scale since 2022), **which implies that the volume of US Treasury sales could reach $40 billion to $50 billion.** Although Federal Reserve data on foreign reverse repurchase agreements (RRP, an indicator of official cash proxies) and custody holdings for the week ending May 13 do not yet show clear evidence of large-scale official liquidation (custody holdings decreased mildly by only $10 billion compared to pre-potential intervention levels), the source of the intervention funds remains a mystery. BofA warns that **if further yen intervention requires selling close to $100 billion in US Treasuries, it would have a substantial impact on the US Treasury market**, equivalent to the decline in custody volumes at the beginning of the Iran conflict, and would constitute a huge headwind for front-end spread positions. ## **Surging Yields Trigger Major Capital Migration, Short Duration Becomes the Absolute Safe Haven** Despite the overall bearish stance on positions, capital flows reveal another dimension of market tension: higher yields are re-attracting capital entry. As duration gets sold off, fund inflows have actually accelerated. **Last week, US fixed-income funds absorbed as much as $18 billion, a figure twice the average level of the past 12 weeks.** **** **However, capital is not flowing in blindly.** Inflows are mainly dominated by Aggregate (Agg), short-term government bonds, and Investment Grade bonds (IG), while long-term government bond funds were the only category to experience capital outflows. This significant divergence indicates that investors are rapidly shortening their Weighted Average Maturity (WAM) against the backdrop of the market repricing the risk of Federal Reserve rate hikes. **Notably, against the background of bull retreat and foreign selling, Primary Dealers and US domestic banks are absorbing the supply.** Data shows that dealers' balance sheets are expanding, with their long-end holdings in both spot and futures markets increasing significantly. At the same time, the pace at which US domestic banks have increased their holdings of US Treasuries and Agency debt (UST & Agency) in recent months has been noticeably faster than that of MBS. In addition, **the funding status of DB private pensions—traditional big buyers in the fixed-income market—remains sound (the Milliman index shows ample funding).** Historical experience suggests that when funding conditions improve and interest rates rise, pensions tend to buy more US Treasuries. However, April data shows that US Treasury stripping activity has fallen from its peak at the end of 2024 to below historical averages, suggesting that the momentum of this portion of long-term buying power is marginally slowing down and difficult to fully hedge against the current wave of selling. ### Related Stocks - [BAC.US](https://longbridge.com/en/quote/BAC.US.md) - [BIL.US](https://longbridge.com/en/quote/BIL.US.md) - [TLT.US](https://longbridge.com/en/quote/TLT.US.md) - [SHV.US](https://longbridge.com/en/quote/SHV.US.md) - [USDU.US](https://longbridge.com/en/quote/USDU.US.md) - [BND.US](https://longbridge.com/en/quote/BND.US.md) - [AGG.US](https://longbridge.com/en/quote/AGG.US.md) - [IEF.US](https://longbridge.com/en/quote/IEF.US.md) - [GOVT.US](https://longbridge.com/en/quote/GOVT.US.md) - [SHY.US](https://longbridge.com/en/quote/SHY.US.md) - [BAC-Q.US](https://longbridge.com/en/quote/BAC-Q.US.md) - [BML-L.US](https://longbridge.com/en/quote/BML-L.US.md) - [BAC-L.US](https://longbridge.com/en/quote/BAC-L.US.md) - [BAC-K.US](https://longbridge.com/en/quote/BAC-K.US.md) - [BML-H.US](https://longbridge.com/en/quote/BML-H.US.md) - [BAC-N.US](https://longbridge.com/en/quote/BAC-N.US.md) - [BAC-E.US](https://longbridge.com/en/quote/BAC-E.US.md) - [MER-K.US](https://longbridge.com/en/quote/MER-K.US.md) - [BAC-O.US](https://longbridge.com/en/quote/BAC-O.US.md) - [BML-G.US](https://longbridge.com/en/quote/BML-G.US.md) - [BAC-M.US](https://longbridge.com/en/quote/BAC-M.US.md) - [BAC-B.US](https://longbridge.com/en/quote/BAC-B.US.md) - [BML-J.US](https://longbridge.com/en/quote/BML-J.US.md) - [BAC-S.US](https://longbridge.com/en/quote/BAC-S.US.md) - [BAC-P.US](https://longbridge.com/en/quote/BAC-P.US.md) - [8648.JP](https://longbridge.com/en/quote/8648.JP.md) ## Related News & Research - [US 30-year Treasury yield could rise above 6%, BofA survey says](https://longbridge.com/en/news/286894243.md) - [Is Bank Of America (BAC) Offering Value After Recent Share Price Weakness?](https://longbridge.com/en/news/286683897.md) - [Bank of America trims Thyssenkrupp voting rights to 4.84% from 5.05%](https://longbridge.com/en/news/286866945.md) - [Stephens Inc. 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