Bond traders who just days ago were piling into wagers for more than six interest-rate cuts from the Federal Reserve this year already appear to be having second thoughts.

JPMorgan’s latest Treasury client survey showed the biggest net drop in long positions since May 2020, according to a report covering the week through Jan. 2. It includes Tuesday’s price action, which saw Treasury 10-year yields end the day higher by over 5 basis points amid doubts that central bankers would give up their fight against inflation so quickly.

The shift in positioning was driven by both a reduction in longs and new short bets. Last week saw 10-year yields drop as low as 3.78%. They’ve since surged, breaching 4% in Wednesday’s US session before a flood of dip buyers helped bonds pare losses.

Cautious sentiment has also appeared in the Treasury futures market, where Tuesday’s price action was consistent with new short positions. In total, a combined $7.6 million per basis point move in risk was added across all tenors except the 5-year notes. Recent flows in options linked to the Secured Overnight Financing Rate have also shown some renewed appetite for hawkish hedges.

The selloff in Treasuries to open the year has been influenced by bigger moves in core European rates — UK 10-year yields climbed over 10 basis points on Tuesday — along with a strong start to US dollar corporate deal flow. Wednesday’s session is expected to see an additional 13 names pricing deals, following almost $30 billion of issuance Tuesday.

There still remain roughly 1.5 percentage points of rate cuts, or the equivalent of six 0.25 percentage point moves, priced into policy meetings for this year. This means that any higher-for-longer signals from the Fed meeting minutes, set to be released at 2pm New York time Wednesday, could see a further eroding of expectations.

This article was provided by Bloomberg News.