Hedge funds have ramped up bearish bets on US equities to the highest level since 2021.

Short exposure to US equity indices and ETFs has climbed to around 13% of total gross exposure nearly double pre-COVID levels, and the highest in five years.

Meanwhile, markets are sitting in a strange split reality: the S&P 500 is hovering near record highs, US bond yields are back at levels last seen in 2007, and Japan’s bond market is showing signs of stress.

In Korea, retail investors are taking on record leverage to keep buying the rally.

So the setup looks simple on the surface retail keeps buying, hedge funds keep shorting.

At some point, one side of this trade is going to be very wrong.

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