Net Speculative Positions in Treasuries

[Trader200K]

A Jan14 article at Zero Hedge gives a summary graph showing the "Interest Rates Are Going Higher" trade getting a bit crowded. (Now a million contracts short ... topping their lookback of 20 years.) The recent spike does seem like a fairly unique situation and the author describes it as a "4-Sigma Event".

I can drum up a few reasons for either a reversion or an expansion of short positions from here, but I am finding little excess weight on one side or the other to tip the direction scale convincingly ... or even half convincingly.

I would be interested to hear others' thoughts/opinions as to where this will go and what the underlying force will be to make it so.

All stabs welcome.

Best regards,
T200

 

[Spectre2007]

The major inflections occurred because of Brexit and Trump, if you look at Gilts they started breaking down after Brexit as the pound crashed. On 11/9, the bond market started getting decimated with Gold. While the dollar staged a huge rally. The next major inflection will be 1/20. What will 'Global Finance' do when Trump officially takes office. I would imagine the opposite of 11/9. Bond markets should rally, with Gold, and dollar takes a dive.

Even though Trump is spinned to be loose Fiscally, he seems to demonstrate the opposite. Tariffs/trade wars, are growth prohibitive, especially if he goes after all the multinationals. It will take years for the new plants to be built and for jobs in manufacturing to materialize in the near term. Whoever wins a first term, will look to win a second term. So many of the things he said or promised, he will need to fulfill or try very hard. Since they will be used against him when he runs for second term.

 

[fordewind]

 

[fordewind]

 

[victorycountry]

Even though Trump is spinned to be loose Fiscally, he seems to demonstrate the opposite. Tariffs/trade wars, are growth prohibitive, especially if he goes after all the multinationals. It will take years for the new plants to be built and for jobs in manufacturing to materialize in the near term. Whoever wins a first term, will look to win a second term. So many of the things he said or promised, he will need to fulfill or try very hard. Since they will be used against him when he runs for second term.

I think you have not taken into account his background.
He's different from his predecessors. He is not a pure politician. He knows inside and outside of the business world.
A lot of traders are talking in a way that he will worsen the US economy and his system will not work. But I seriously do not see that .

When Korea elected former Hyundai CEO Lee Myung-bak as their president in 2008, Korea was able to avoid financial crisis 2008. Under his government, economically and financially Korea had a good time.

 

[xandman]

2015 was a global bond rally led by Europe

September 2016- ECB hinted on no more stimulus.
November 2016 - Trump
January 2017 - An outline of a new Fiscal Policy

It would take an equity market correction for it to go back up in a meaningful way. That and/or 2 more rate hikes.

 

[victorycountry]

2015 was a global bond rally led by Europe

September 2016- ECB hinted on no more stimulus.
November 2016 - Trump
January 2017 - An outline of a new Fiscal Policy

It would take an equity market correction for it to go back up in a meaningful way. That and/or 2 more rate hikes.

xandman, do you expect gold to stay in bull trend on Trump's inauguration?
I still think the value of gold will gradually fall as Trump takes his office.
I also see USDJPY (Yen which is regarded as a safe heaven currency and has a positive correlation with gold) sitting in bull trend on the weekly chart.

 

[xandman]

xandman, do you expect gold to stay in bull trend on Trump's inauguration?
I still think the value of gold will gradually fall as Trump takes his office.
I also see USDJPY (Yen which is regarded as a safe heaven currency and has a positive correlation with gold) sitting in bull trend on the weekly chart.

Nice Observation. Yen is running with the highest 30-180 day correlation with gold right now around .60.

I am definitely bearish gold. But at lower and lower volatilities, it becomes like shorting the VIX. A scary position.

 

[Eurokopek]

Apart from my views on the merit of fading the move in yields, that's what occurred in my mind when I looked at net positions:

- 1m contracts is 100b of treasuries. That's 3 day trading volume in cash in this maturity sector. Not sure it makes sense to look at futures positioning without knowing cash positioning.
- It was estimated 100b of fed purchases reduced yields by 3-8 bps; 10y yield is up around 60 bps since late october
- Charts from the ZH article suggest that combined treasury and ED tsy-equivalent positioning change over 4 weeks was less than 100b.
- Surprisingly little vol for a "4-sigma event", realized vol of about 80 bps annualized for 10y since Trump won versus 96 bps historical 2000-2016

Not checking the implied vol in the options markets but perhaps it would make sense to look there with realized vol so low if you decide you wanna do this trade.