Bye, Bye Black Swan? Massive Treasury Short Trimmed Aggressively For 3rd Week

Last week, we noted that in the wake of the Fed’s “dovish” hike – which, you’ll recall, sent yields sharply lower – specs aggressively pared their shorts in 10Y Treasurys.

Well, in the latest CFTC data – out Friday and current through Tuesday – it certainly looks as though the GOP’s failure to push through comprehensive health care reform triggered still more short covering in one of the year’s most crowded trades.

“Speculators continue recent trend of covering shorts across Treasury curve,” Bloomberg notes, adding that specs “cut a total of about $18M/DV01 combined across 2Y, 5Y, 10Y and 30Y futures.”

Specifically, they decreased net shorts in aggregate Treasury futures by 192K contracts in TY equivalents, covering 132K contracts from their net shorts in TU, 57K contracts in FV and 31K contracts in TY net shorts. Zooming in, have a look at this:

Shorts

(Deutsche Bank)

That represents further trimming on a position that was already the least net short since the election. 

Of course the record eurodollar short remains squarely in place…

Eurodollar

(Deutsche Bank)

… but it’s worth noting that all told, this most “consensus” of consensus trades is no longer a 3-sigma event as spec net shorts as share of open interest have eased to -5.8% from -9.0% two weeks ago and were at about -2.0 standard deviations away from neutral as of Tuesday. Thus positioning is far less black swan-ish than it was just two months ago.

sigma2

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