The market's reaction to recent tariff announcements has been marked by a bear flattener in the yield curve, indicating rising short-term rates relative to long-term rates. This movement suggests that investors view tariffs as inflationary in the short term, while also posing risks to long-term economic growth. As a result, there has been a notable increase in net longs in longer-dated Treasuries, reflecting a flight to safety amid these concerns. Additionally, the market is adjusting interest rate hedges by increasing net shorts in SOFR futures, further highlighting the inflationary expectations.
Investor sentiment is also reflected in the high net long positions in gold and the dollar, which have reached decade highs, underscoring the demand for safe-haven assets amid economic uncertainty. Meanwhile, positioning in US stocks remains net long but is beginning to decline, indicating growing apprehension about the potential negative impact of tariffs on economic growth and corporate earnings.
The Direxion Daily 20+ Year Treasury Bull 3X Shares ETF (TMF), which aims to deliver triple the daily performance of the ICE U.S. Treasury 20+ Year Bond Index, is currently trading at $40.19 as of 09:54 on February 4, slightly down from its last close of $40.95. This reflects the broader market's cautious stance as investors navigate the complexities of tariff-induced economic challenges.