• TLT, the 20-plus year Treasury ETF, has been a profitable short. TLT price is down 7% this year and 10% over twelve months; its shorts are up $561 million in mark-to-market profit year to date, most of the $706 million earned across four Treasury ETFs tracked by S3.

• Shorts took profits in the spring. From the December peak to the end of April, TLT shorts covered 60 million shares, cutting the position 40% to 91 million shares, or $7.8 billion, with the price down just 2%. It has held around 90 to 100 million shares since.

• The new short money is in the belly. Since June, the IEF (7 to 10 year) short is up 52% in shares and IEI's (3 to 7 year) has doubled, taking the 3 to 10 year funds from 14% to 20% of the four-fund book. Both have eased from August highs, though IEI is rising again this month.

What this is: a read on duration hedging in the vehicles generalist managers tend to reach for, rather than the futures and cash markets where the basis trade dominates. S3 tracks short interest daily in four Treasury ETFs spanning the curve, from SHY at the front end to TLT at the long end. Short interest across the four is $11.8 billion, two-thirds of it in TLT, which has been the core short for a year. This summer the new hedging went to the 3 to 10 year funds instead. Over the last month the general trend has turned to covering, led by TLT.

What it says about Wednesday: shorts came into this year betting that sticky inflation, heavy supply and a rising term premium would keep pushing long yields up, and they were right; much of the TLT position has since been covered at a profit. This summer the hedging moved to the belly, which is more sensitive than the long bond to the expected path of policy. Those shorts went on through July and into mid-August, before Jackson Hole and last week's CPI report pushed the odds of a hike toward 90%. With the hike now priced, profits are being taken in the long bond, while the belly hedge, trimmed from its August peak, is being rebuilt on the margin.

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