Those of you old enough to remember March may recall that the fireworks surrounding SVB’s implosion triggered a massive shock for CTA trend.

“Going with it,” so to speak, was a good strategy vis-à-vis hawkish rates bets in 2022, but the multi-sigma dovish repricing catalyzed by a trio of US bank failures upset the proverbial apple cart. In mid-March, one of the most widely-cited CTA trend indexes suffered its largest two-session drawdown in the history of the series, which dates back nearly a quarter century.

Fast forward to November and CTAs were once again hit with a shock drawdown amid the dramatic three-day decline in US yields and the attendant about-face for the dollar. “Legacy CTA trend positioning and hence, their performance, [was] properly pole-axed into the ‘everything rally,” Nomura’s Charlie McElligott said Tuesday, describing the fallout from last week’s price action.

A very large share of CTA performance over the past two years was attributable to chasing the bearish momentum in bonds and STIRs.

In light of those legacy positions, there’s been speculation about presumably outsized notionals on any short covering into a rates rally extension. On that score, McElligott added critical nuance in his Tuesday missive.

“There is a ton of focus on where legacy positions could begin to cover and/or flip,” he wrote, before noting that only the short-term signals are “long.” The longer-term horizons in Nomura’s model remain short and “deeply in the money.”

All (or most anyway) of the model-loading is concentrated in those longer-term horizons. For example, in TY, the one-year horizon has 74.5% of the weighting. The rest of it’s in the three-month horizon. So it doesn’t make any difference whether the short-term signals are “long” or not.

That’s good news for bond and STIR shorts. “Those heavy loading time horizons… are a long way from mechanical buy-to-cover thresholds,” Charlie wrote.

The obvious caveat is that if the bond/rates rally proves durable, the longer windows could flip too. That’s when it’d get interesting.

“If this rally were to sustain in time, or build further in price, the three-month window flipping from ‘short’ to ‘long’ becomes an extremely large notional ‘buy-to-cover’ impulse,” McElligott said, of the USD 10-year signal.