One of the stories that captured the attention of the entire macro universe this month was the record net Treasury short which, at one point, was a 4-sigma event.
Especially interesting was positioning in 5Y futs, where specs and real money are taking opposite sides of the trade.
“Someone’s going to get hurt,” as RBC put it last week.
As a reminder, the gap between hedge funds’ net short position and their historical average net long/short position expressed in terms of standard deviations constitutes what amounts to a black swan – it was over six standard deviations as of mid-month.
Well, the latest CFTC data out Friday evening (and up to date through Tuesday) shows specs trimming net shorts in 5Y and 10Y futs by ~66k and ~79k contracts respectively, a combined ~$9.4m/DV01.
(Charts: Deutsche Bank, CFTC)
Meanwhile, asset managers reduced their 5Y and 10Y longs by ~79k and ~120k respectively. Thus, the disparity between specs and real money positioning is disappearing – albeit slowly – in 5s.
“Speculators eased their short positions in Treasury futures for the second straight week as they pared about $6.2 billion from their net shorts to $80.1 billion in ten-year cash equivalents,” Deutsche Bank notes, adding that “most of the short covering came again in FV and TY futures.”
Meanwhile, USD net long positioning fell by $4.8bn over the same period. Dollar longs fell against every currency in the week through Tuesday.
In short (no pun intended), the most crowded trades of the year got a little less crowded as traders pared reflation bets following Trump’s inauguration.