Bond rally nearing an end?

ok bond guys....

I was looking at t-bond and t-note open interest on today's COT report and it adds up to 1.5 million contracts

a few years ago it was 200,000 contracts....

question: where's this action coming from and let's just say for the hell of it that 25% of the positions want out on a given day....

I mean are hedge funds really responsible for the parabolic rise in OI?
 
i mean take a look at this chart of just the 10 year OI.....lookat the 6+ standard dev. of the data and realize that this is net long positions

I mean something could unwind this and not knowing what, I will stick with my gold position.........
 

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Hi!

Using your data I put together this chart.

It seems Bond traders were doing fine until 2004, when the FED started jacking with short term rates.

Then they started being fully long at tops and fully short at bottoms. Totally out of sync with the market. Hedge funds ???

Now with record LONG open interest, Bonds have only one place to go ... kerplunck!
 

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From a central bamk standpoint, China & Japan are at the top of the international reserves list around $900M-$1T. Both have a huge trade surplus with the US. China, however, has bad loans totaling nearly $800M. Japan has been working on their bad loans since the bubble nicked in'89; not sure the amount, so I'll guess it's around $300M. They accumlate dollars thru trade, then sterilise by buying bonds. Thus, they have a vested interest in keeping rates steady to lower.

From a supply standpoint, the US 30yr. stopped issuing in '01, then started up again in '04. When the Nasdaq went kaboom, all these municipalities, pension/mutual funds and insurance companies immediately soiled their britches. Underfundings galore. Time for the safety and comfort of a long bond. England and France both introduced 50-yr. bonds to match pension liabilities, so don't be surprised if you see that in the U.S.


All this being said, the participation rates from CB's in the recent TIPS auction was 54%; for the Treasuries, its around 25%. I'd say the massive open interest is mainly due to the much-reported carry trade; borrowing in Japan and going long in the U.S. on interest rate differentials, for example. When markets gyrated back in May, these types of trades unwound a bit.
 
but this time we're 6 - 10 sigma above the mean....

If bonds are due to tank, it better be a deep tank

other than M3 growing at 10% y/y, I cant find what else is driving 10 - 30 year OI...

the reversal will be a spectacle for the ages........
 
Thank you guys for the charts.

My analisys and charts also confirm the above. Something is going to force the US to increase rates substantially throughout 2007.
 
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