ETF short positions reflect bearish long-term sentiment and mixed intermediate-term views. Unemployment and FOMC speculation complicate the market outlook, with ETFs pricing in a more curved yield curve but no rate cut.

Unemployment has added significance because it may determine what the FOMC does. There is some talk of a 50bs cut but it is not priced in to the ETFs.

Although it's true that the yield curve is inverted, the situation is more complex as it slopes upward from 5 years to 30 years.

This situation, with a minimum in the middle, is rare and historically difficult to find examples for. In this context, it’s not enough to discuss whether the curve is flattening or steepening, which refers to the relationship between short-term and long-term yields; we also need to consider whether the curve is more linear or more curved.

For the curve to appear more linear, middle yields would need to rise, while for it to be more curved, middle yields would have to fall.

This particular shape of the curve is complicated in that it is inverted up to 5 years and normal beyond that.

With unemployment data and the FOMC meeting approaching, there is speculation about whether the Fed will cut rates by another 50 basis points.

The short market is providing the following indications.

TLT: Long-dated, short position is up while the stock is down, suggesting bearish sentiment on prices or higher yields (or yields higher than expected).

IEF: Intermediate. The stock is down (yields up), but the short position is also down, which is bullish and indicates lower yields.

IEI: Short-term, similar to TLT; stock is down, short position is up, bearish on price, indicating higher yields.

When we consider these together, we observe that short- and long-term yields are rising while intermediate yields are falling, resulting in a yield curve that is more curved than the current one.

Bond ETFs across all maturities are lower, which is inconsistent with a 50 basis point cut. They were all higher until September 17, when there was a turnaround following the previous FOMC meeting. The long rate has been higher since September 26, when GDP data was released.

The forecast appears to suggest lower bond prices and a more curved yield curve.

Simultaneously, the SPY short position is at a six-month high as the market reaches new highs. This pattern of shorting during upward movements or reversals is typical of the S&P.

The last time the short position was this large, it decreased while the market rallied.

When we examine the constituents, we see that the short position is near a high but is falling, which may be bullish.

The ETF short positioning indicates bearish long yields and mixed intermediate sentiment. The approaching FOMC decision and unemployment data will be key to market moves and yield curve evolution.

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