The “good” news a week on from the the September 9 “Momentum massacre” is that thanks to the risk-off mood occasioned by the attacks on Saudi Arabia, bonds rallied.

Remember, the trigger for last week’s historic factor unwinds and epic reversals was a selloff in duration, which in turn rippled across bond proxies and other slow-flation consensual positioning.

Ultimately, last week saw the biggest bond selloff since the election and the Momentum bloodbath will “live in infamy”, to quote Nomura’s Charlie McElligott.

Read more on ‘One Of The More Stunning Trades In Modern Market History’

Now, with risk-off trades predisposed to rallying anew on geopolitical turmoil, some of the pressure on the long side of that consensual positioning may come off.

“In what stands as yet another abrupt ‘about-face’ for markets, the Saudi-Iran proxy war escalation and ~+11.0% ‘knock-on’ into Crude is now driving a power ‘risk-off’/’flight to safety’ rally in recently beleaguered USTs/Rates in the consolidation period ahead of this week’s FOMC”, McElligott writes on Monday.

At least in the initial reaction, whatever bump bond yields would ostensibly get from the inflationary impact of the crude spike is likely to be overwhelmed by the flight to safety bid.

But in the context of last week’s factor reversals and Momentum unwind, there’s a potential tragicomedic read-through.

“A re-rallying of ‘risk-off’ trades would of course help stanch not just the violent Rates selloff experienced over the past few weeks, but also too stop the bleeding in the US Equities factor rotations, particularly the ‘Momentum Massacre’–as that too has been a pure Rates / Duration expression”, McElligott says, recapping the points made above, before delivering the punchline. To wit:

However, one obvious “point of pain” off the back of the weekend Saudi pipeline attack which could keep “Momentum Shorts” ripping to the demise of many would be the rally in Energy shares, which have acted as  “placeholder shorts” for HFs / baseline underweights for MFs for years and where even despite September’s +6.1% rally on the Momentum unwind, the sector remains -18.0% as the S&P’s worst over the past 1Y.

Energy shares tacked on 3% in early trading on Monday, bringing the September surge to 9%.

And so, Charlie warns that “even if US Equities ‘Momentum Longs’ rally today alongside US Rates, the ‘Momentum Shorts’ squeeze-carnage too could continue, with 23.7% of our 1Y Price Mo ‘Shorts’ leg sitting within the Energy sector, while ‘Value’ factor proxies show the Energy as a 26.5% weighting in ‘EBITDA /EV Longs’ while the Energy sector weighs as only 4.5% of the S&P and 3.4% of Russell 2,000”.

Again, a potential tragicomedic outcome, if it pans out.