Almost the whole world seems to be betting on a flatter U.S. yield curve, such is the force of the move that has been in motion for weeks and by some measures is the most aggressive in years. If the latest U.S. futures market positioning is any indication, however, hedge funds are not on board. Commodity Futures Trading Commission data for the week to Nov. 30 shows that funds flipped to a net long position in two-year Treasuries futures, trimmed their substantial net short 10-year holding only slightly, and increased their net short position in the 30-year space. Collectively, these are shifts that will profit from a steepening of the yield curve, or a widening spread between short- and longer-dated yields. Buying, or going "long" bonds is essentially a bet on lower yields, while selling or "shorting" debt is usually a bet on higher yields. Funds trimmed their net short position in 10-year Treasuries futures by 10,044 contracts to 313,371 contracts, still close to the previous week"s biggest net short since February last year just before the COVID-19 pandemic. Meanwhile, their net long 2-year Treasuries futures position is only a small 15,670 contracts, but it is the first net long since August. The 62,290 contract swing from the previous week was also the biggest in four months. While the CFTC data appears to show funds rowing back on how soon or how high the Federal Reserve will raise interest rates in the near to medium term, and maintaining a higher long-term rate outlook, the exact opposite has played out in the market. All parts of the U.S. curve are flattening, raising red flags about the toll inflation-busting rate hikes might take on the economy, limiting the Fed"s ability to tighten policy much and maybe even forcing it to cut rates in the near future. read more DISCONNECT For some parts of the curve, last week was historic. The gaps between two- and 10-year yields, and two- and 30-year yields shrank by 22 and 24 basis points, respectively, both the biggest weekly curve flattening since May 2012. This had two main drivers: Fed Chair Jerome Powell"s hawkish testimony to Congress, which put upward pressure on short rates; and the spread of the Omicron variant, which stoked growth fears and fueled demand for long bonds. Economists at Barclays now expect the Fed to start raising rates in March. Their counterparts at Bank of America also say March is now "in play", and former Treasury Secretary Larry Summers says the Fed should hike four times next year. But the Omicron variant, and its possible impact on travel and demand, may hit economic activity. Citing Omicron, economists at Goldman Sachs this weekend lowered their U.S. 2022 growth forecast to 3.8% from 4.2%. As long as this disconnect persists between an increasingly hawkish Fed outlook and increasingly fragile growth picture, the yield curve might struggle to steepen much, if at all. "Although curve has already flattened considerably, there is a risk of further flattening. We are buyers of conditional bear flatteners in the near term," Deutsche Bank fixed income strategists wrote in a note this weekend. This would offer funds an opportunity to get in on the trade. A look at the shift in CFTC positions across the Treasuries futures curve last month shows that they have been missing out in it for some time. In November, funds wiped out their net short two-year position of over 100,000 contracts, massively increased their net short 10-year position by almost 200,000 contracts, and reduced their 30-year net shorts for the first time since June. Set against what actually played out in the bond market last month, only the buying at the ultra long end would be "in the money". The two-year yield edged higher, yields from 5-30 year maturities fell, and all parts of the curve flattened.