“Trend following had a tough time,” SocGen’s Sandrine Ungari gently remarked, in a recent note.

She might’ve used more colorful language. A little hyperbole would’ve been entirely justified. CTAs had a horrible go of things recently amid brutal reversals both in markets and, relatedly, in the narratives that drive them.

If you’re chasing trends, volte-faces are anathema. And a lot’s shifted over the past… I don’t know, let’s call it 45 days.

For what it’s worth — a lot in notional terms, I can assure you — CTAs have now covered the entirety of the legacy short rates/bonds trade which typified the global tightening cycle. In fact, as both Ungari and Nomura’s Charlie McElligott noted, trend-following strats are now long pretty much across the board in fixed income.

The dovish turn in rates, bonds and, as a result, fixed-income positioning, comes as central banks cut rates at the fastest pace since the original COVID shock.

“CTAs have just turned long duration on major bond markets and are positioned for a recessionary scenario in commodities,” Ungari wrote, in the same note mentioned above. Late last week, McElligott said the trend community’s “almost unanimously long” across STIRs and G10 bonds.

On Tuesday, Charlie described “busted” trends courtesy of the one-eighty-style macro-market regime shift. Then he showed the impact of those busted trends using SocGen’s widely-cited CTA index.

The first thing you’ll observe is that managed futures strats, considered as a monolith, are now underwater in 2024 thanks to the most recent drawdown. The second thing you’ll note, from the table on the right, is that recent losses are anomalous — 1%ile moves. Things that shouldn’t happen. And almost never do.

So, what’s next for this cohort? Well, according to SocGen (and this is intuitive), the worst losses came from CTAs’ longs in the Nikkei and the yen. As of late last week, they were back to neutral on JPY but still sitting long “on most equity benchmarks,” Ungari went on. The implication, she said, is that “if the market continues its rebound, they should be able to recover some of their losses.”

As for fixed income, McElligott mentioned, in passing, that in the event some catalyst comes along and triggers another reversal in rates (i.e., something that forces a hawkish repricing at the front-end and pushes yields back up), the newly-established “100%” longs will be imperiled. “[W]ith the Fed likely taking what the market is giving them into the growth scare, the fixed-income positioning turn is the rational ‘chalk’ outcome,” he wrote, before adding a caveat: “But geez, if there were any sort of catalyst off the back of surprisingly ‘better’ US or global growth and inflation data, there could be a lot of stuff coming for sale.”

Finally, do note that despite the preponderance of numbers (“It’s clearly quantifiable, it’s got lots of numbers in it,” to channel George W.), reading CTA positioning can feel a bit like tasseography sometimes. As Ungari put it, “Timing CTA/Trend strategies is as complicated as timing markets.”