I’ve spilled 46 gallons (exactly) of digital ink talking about the multi-sigma short in Treasurys.
In fact, I’ve written so much about it that I’m inclined to think that if I were you, I’d be sick of hearing about it. Sorry about that, because you’re going to hear a lot more about it going forward.
As you’re aware, the extreme positioning in Treasurys is a reflection of reflation trade bias. If you’re short, you think the reflation narrative has legs. If you’re long, you think yields will remain low for whatever reason.
One of the most asked questions (well, I don’t have any data on that, but I assume a lot of people are asking) is this: is the record short a contrarian indicator? I’ve got a piece coming out this evening that will answer that question, but for now consider the following scatter plot out just a few minutes ago from Deutsche Bank.
I’ll give you a short excerpt as a clue.
Via Deutsche Bank
The scatter plot, represents the interaction of the [lagged Treasury positioning and subsequent change in yield]. The important point to note on the plot is that there are only a few points in the second and the fourth quadrant (red diamonds). Out of 35 observations, post 2010, only five have been “misdiagnosed “.