If ever there were a sign that the market is fading the reflation narrative or is otherwise concerned about the outlook, then surely this is it.
Over the past several weeks, we’ve documented the furious short covering in 10Y Treasury futs.
This has of course coincided with multiple land mines for the bearish rates thesis including, but by no means limited to, the dovish spin the Fed put on the March hike, rising geopolitical tensions, Trump’s failure to “repeal and replace,” gerrymandering on tax reform, and on a few occasions, poor econ data (e.g. the March auto sales debacle).
The series of unfortunate events has led more than a few analysts to rethink the bearish Treasury thesis.
As that thesis began to crack, the short Treasury trade began to unwind.
Well on Friday, we got the latest CFTC positioning data (current, as usual, through Tuesday) and guess what? Specs flipped to their heaviest long TY position since 2008.
“They sharply covered Treasury shorts from 5Y out to Ultra bonds, notably across TY futures where positioning flipped to net long,” Bloomberg wrote on Friday, adding that “in 10Y futures, speculator accounts added $20m/DV01 total duration in the week, or ~255k contracts, covering shorts and building longs.”
Make no mistake, this is notable. Here’s the visual:
Amusingly, a whole lot of the short covering looks like it occurred in the days leading up to the first round of the French election, based on drop in open interest.
The only question now is whether this, like the (previously) massive short, will prove to be a contrarian indicator.