Just a quick update for readers on positioning in Treasury futs.
On Friday we noted that between…
- a tumultuous month on the political front where ongoing tension between Donald Trump and, well, everybody, is casting considerable doubt on the fiscal outlook;
- rising geopolitical tension that’s helped catalyze episodic – if shallow and fleeting – flights to safety;
- still tepid incoming inflation data;
… 10Y yields are now sitting near their lowest levels since before the rates mini-tantrum Draghi triggered in late June with his comments in Sintra.
All of the factors listed above have of course weighed heavily on the hapless dollar, where sentiment has deteriorated rapidly:
Interpreting spec positioning is never entirely straightforward and extremes have a way of being contrarian indicators (which is a recipe for all kinds of humor when the “smart” money gets burned), but contrary to what you might have read from some bloggers last month, there’s a reason why everyone keeps track of the CFTC reports. It’s not really a “shits and giggles” type thing.
Well given everything said above, what you’ll read in the following quick recap from Deutsche Bank probably won’t surprise you:
Speculative positions turned net long for the first time since June, according to data as of 8/22. Specs bought an equivalent of 3.1mm DV01 in Treasury futures during the week, further reducing their short positions in TU and FV contracts and increasing their long positions in TY and US contracts.
Positioning TY and US are hovering in the extreme long territory: their 5yr standard deviations are 2.1 and 2.2 respectively.
Make of that what you will, but it certainly doesn’t look like a vote of confidence in the prospects for the Trump agenda from where we’re sitting.