One of the more popular discussions in market circles over the seven- (going on eight-) week “everything rally” revolves around the contribution of CTA buy-to-cover flows in what I’ve (quite aptly, I think) described as a “monumental” rates rally.

As a quick reminder, legacy shorts across STIRs and bonds explained an outsized share of CTA performance looking back ~two years, as the Fed’s inflation battle made rates a one-way, trending hawkish bet.

In November, the tide turned. You know the story. Or at least you should. Between smaller-than-expected coupon increases at the quarterly refunding, Jerome Powell’s de facto removal of the last rate hike (via an admission, during the November FOMC press conference, that the dot plot was stale), a run of softer macro data and, finally, Chris Waller’s explicit nod to the likelihood of insurance cuts in 2024, yields plunged and traders pressed rate-cut bets. When given the opportunity to push back last week, the Fed (and Powell) declined, thus green-lighting the rally in all its various manifestations and blessing one of the most pronounced 30-day financial conditions easing impulses on record.

The accompanying short squeeze for CTA trend was striking. In an update on Tuesday, Nomura’s Charlie McElligott put the combined cover/buy flow across bonds and STIRs since late October at more than $365 billion.

“We now estimate an eye-watering cumulative $196.8 billion of bond covering / buying and $169.5 billion of STIRS covering / buying, as the regime change in policy signaling set off ‘the short squeeze heard around the world,” Charlie wrote.

Of course, that massive flow helped turbocharge the rates rally which triggered it in the first place. And the rates rally naturally knocked into equities.

The bond selloff from August through October was the bane of stocks’ existence, so when that selloff reversed and morphed into a raucous rates rally, equities’ fortunes improved overnight. Literally. As vol collapsed and stocks rallied, CTAs and vol-sensitive cohorts re-leveraged, re-allocated and re-risked.

“The ensuing vol crunch and price-trend reversal saw an estimated $130 billion of global equities buying across CTA trend and vol control off the October lows,” McElligott went on.

The question now is the same as it was last week, when I last quoted Charlie’s CTA estimates: Is there more to go in terms of CTA buying in bonds and STIRs? As it turns out, the answer is still “yes.” Or, more accurately, “yes, contingent on the macro and policy signals.”

“There remains size potential CTA trend buying in bonds / STIRS to rebuild the outright long signal if rate cuts continue to be signaled and/or the data slows further, as the vast majority of the notional buying thus far has been simply to cover the legacy short positions,” Charlie wrote.

He did add a word of caution. In the event the data re-accelerates (i.e., if the animal spirits are indeed stirring again and that starts to manifest in a macro “reheat,” so to speak) there’s a risk that some of the recent buying and covering turns back into selling.