As you’re probably aware – and if you’re not, you should make yourself aware – watching CFTC positioning data is a good way to monitor the market’s evolving assessment of the reflation narrative.
One of the big stories this year has been the record spec short in Treasurys. That position constituted a four-sigma event at one point last month, meaning it was well on its way to becoming black swan-ish.
Indeed, if you looked at the gap between hedge fund long/short positioning in Treasurys and their historic long/short positioning expressed in standard deviations, we recently witnessed a 6+ sigma event.
Over the past several weeks, the net Treasury short has unwound a bit and the latest positioning data (up to date through Tuesday as usual) shows that specs trimmed their net short for a fourth consecutive week.
Via Detusche Bank
Speculators eased their net shorts position in Treasury futures for the fourth straight week by $4.1 billion to $74.9 billion in tenyear cash equivalents. In terms of duration adjusted open-interest spec net shorts eased to 7.6% from 10.2% five weeks ago. They decreased their net shorts in FV and TY futures by 35K contracts and 49K contracts, respectively. However, specs also sold 18K contracts in TU futures and increased their net shorts in Eurodollar futures by 9K contracts over the week.
Here’s the more granular breakdown including the contentious 5Y tenor, where specs and real money are engaged in an ongoing Mexican standoff:
(Deutsche Bank)
Meanwhile, the enormous spec long position in oil was also pared a bit (incidentally, it will be interesting to see what this looks like next week, as Wednesday’s EIA numbers are captured):
(Deutsche Bank)
Dollar longs were also trimmed despite ostensibly favorable conditions. Consider the following excellent commentary from Goldman:
USD net long positioning declined by another $1.7bn, making it 5 weeks in a row of declines totaling $9.4bn, and $11.3bn in declines since the FOMC hiked interest rates in midDecember. To put that in perspective, it is about one-third of the reduction in USD net longs over the same period a year ago. This is in spite of two-year rate differentials moving in favor of the Dollar since the December FOMC, in stark contrast to a year ago when China tensions were peaking (and a much lower starting point for USD longs in the first place). We attribute this underperformance to “Dollar down” rhetoric from the new Trump administration.
