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As Treasurys Rally Most Since May, When Does The Bond Short Get ‘Squirrely’?

Flight to safety.

Well, if you were waiting on that Treasury short squeeze that Jeff Gundlach suggested was coming back in August, it’s at least possible it could materialize in the face of mounting risk-off sentiment in global equities.

10Y U.S. yields are lower by 7bps on the day, the biggest rally since late May.

Yield

There’s more than a little irony in that. After all, it was a meltdown in BTPs that catalyzed the May rally and here we are on Tuesday staring down a situation where the European Commission has just rejected Italy’s budget.

Here’s the 10Y short which is obviously still crowded:

Treasurys

(Bloomberg)

If you’re wondering when that might get squeezed, Nomura’s Charlie McElligott provided the following possibly helpful visual on Tuesday morning, which he says depicts the point at which the TY short “gets squirrely”:

TYShort

(Nomura) 

 

 

 

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4 comments on “As Treasurys Rally Most Since May, When Does The Bond Short Get ‘Squirrely’?

  1. All these comments on the “Treasuries short positioning” are pathetic. Based on one piece of a giant jigsaw: the large spec CFTC positioning. Which doesn’t give any clue about the cash or swap positioning

  2. If the market was really short, I guess that Treasuries would have rallied “slightly” more than 12bps considering the almost 10%sell-off on the SP500. The Treasuries market doesn’t trade like a “short market” at all.

  3. @christopheollari: yes it sure doesnt trade like a short mkt at all. from the chart above it does appear that if you look at TLT over the time periods where it was max long to max short, TLT did decline some 10 to 20%; and from the last max short to max long levels TLT did gain about 10% in price.

    the current short positioning could lead one to believe we could see 15% price gains in TLT once the shorts cover. could a risk off scenario be the fuse, yes….but also the mkt has been very short for some time now…since ‘everyone knows’ rates are going up for years into the future.

  4. Long treasuries, short stocks.If the T market continues to selloff from here stocks are going to get blasted.

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