Hedge funds appear to think the US economy will not slide into a recession in times to come, as evidenced by their record bets against the US 10-year Treasury.

What happened: Leveraged investors increased their net short 10-year Treasury futures to a record 1.29 million contracts by April 18. reported Bloomberg, citing data from the Commodity Futures Trading Commission.

This is the fifth straight week that net shorts have increased, the report added.

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Treasuries act as a safe haven in times of recession or when a recession is expected. This is the time when investors flock to the instruments and display a risk-off sentiment. Increasing short bets on benchmark Treasuries are countering risk-off sentiment and reflecting optimism about the economy.

Policy Path: Hedge funds will be right if the central bank prevails on its view that interest rates must continue to rise, the report says. Interestingly, two central bank officials, including Philadelphia fed president Patrick Harker And Cleveland Fed president Loretta Mester, on Thursday reiterated the need for further rate hikes.

The US 10-year Treasury yield has seen significant volatility lately. After hitting a level of around 4.08% in early March, the yield fell as low as 3.26% in early April. The iShares 7-10 year Treasury Bond ETF IEF has gained more than 2% since the beginning of the year.

Damien McColoughHead of Fixed Income Research Westpac Banking Corp. told Bloomberg that hedge funds may think inflation will be more persistent than many in the market are currently anticipating. “On the face of it, this big short doesn’t reflect the view that there will be a recession in the near term,” he said.

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