News of the high short interest in Frontier and Windstream comes a week after Goldman Sachs revealed the stocks hedge funds have the largest short positions in. That group includes Dow components Verizon (NYSEArca: VZ) and AT&T with combined short interest of $10 billion as of Feb. 21. [Hedgies Short a Huge Part of the Dow ETF’s Holdings]

Those two stocks combine for 22.5% of IYZ’s weight. Rising short interest in telecommunications names comes as 10-year Treasury yields have dipped 11.5% this year. That is an important fact to remember because although telecom is viewed as an interest rate-sensitive sector, IYZ has traded slightly lower this year even as Treasury yields have declined.

On the other hand, that rate sensitivity may be overstated as IYZ was able to gain 20% last year even as Treasury yields spiked.

The Fidelity MSCI Telecommunication Services Index ETF (NYSEArca: FCOM) is another telecom ETF that could benefit from a short-covering rally. FCOM, which debuted in October 2013, allocates almost 47% of its combined weight to Verizon, AT&T and Frontier, according to Fidelity data.

iShares U.S. Telecommunications ETF