“Simply put, this fattens the right-tail of the US economic soft landing scenario,” Nomura’s Charlie McElligott said Wednesday.

He was referring, of course, to Chris Waller’s market-moving remarks on Tuesday, when the born-again hawk and Committee bellwether expressed “confidence” that policy is sufficiently restrictive to return inflation to target, before sketching a tentative timeline on insurance cuts (“three months, four months or five months”).

As I emphasized in Tuesday evening’s Daily, Waller’s remarks were a big deal. McElligott underscored the point. “This is not a drill,” he wrote, calling Waller’s comments a “huge signal” from the Fed.

Speaking of signals, the read-through of the bull steepner (which now has a green light to commence) has implications for those legacy CTA rate shorts I’ve talked so much about this month.

“CTA ‘shorts’ in STIRS / front-end G10 bonds are nearing the point of being reduced or risk-managed ‘smaller,’ with enormous potential notional buy-to-cover flows now proximate to triggers in what are many of the largest positions in the entire CTA trend portfolio,” Charlie wrote Wednesday.

This is important. Remember: The “normal” late-cycle bull steepener was stymied by a front-end that couldn’t move due to Fed recalcitrance. Although Waller didn’t pull up the front-end anchor entirely, his remarks certainly allowed for some movement, which is to say the front-end can rally now.

That freedom of movement also means that every incremental sign of a softer labor market, cooler inflation and/or slower spending needn’t translate directly into a bull flattener because, again, the front-end now has some leeway to price the policy read-through of softer data.

What does this mean for CTAs? Well, as McElligott reminded market participants, signals were still short despite the recent rates rally because although shorter-term signals flipped ‘long,’ the only windows with any loading were the three-month and one-year windows. Now, “due to the magnitude of the latest rally in ‘everything front-end,'” the three-month window could flip from short to long, which Charlie said “would kick off a massive amount of buy-to-cover flow.”

The figures give you a sense of the proximity.

As far as the amounts go, here’s the breakdown from McElligott:

• EUR 2Y: $20.4B to cover on move and close above 105.46
• USD 2Y: $15.4B to cover on move and close above 101.99
• SFR4: $14.7B to cover on move and close above 95.09
• SFR8: $9.6B to cover on move and close above 96.35

He characterized those potentials as “imminent and enormous short-squeeze risks” given the sheer size of the legacy positions. Those positions are now vulnerable to a risk-management exercise due to November’s ongoing dovish reversal.