Speculative Bond Short Hits New High: Others Claim “Rates Headed To Zero”

Inflationistas think a major inflationary move is at hand and they bet that with futures. I suggest the opposite.

A commitment of traders (COT) report for 10-year treasuries shows record bets that treasury yields are headed higher.

Large Spec Contracts

Long: 606,022

Short: 1,058,155

Net Short: 452,133

Bullish: 36%

Small Spec Contracts

Long: 371,438

Short: 575,158

Net Short: 203,720

Bullish: 39%

10-Year Yield

Inquiring minds may be wondering what speculators were doing mid-2016. The feature chart is easy to read but it does not go back far enough. Here is a second treasury chart that completes the picture.

Summary

Speculators were on the wrong side of a major, 123 point basis point, surge in yield starting mid-2016.

In early 2017, right as yields were ready to temporarily dive, speculators piled on with shorts. Yields rallied about 55 basis points.

Since December 2017, speculators amassed a new record short position. Those in early (December 2017), pick up 55 basis points.

Lisa Abramowicz Offered This Tweet

The volume of speculative bond shorts has reached a new record, according to CFTC data. h/t @5thrule pic.twitter.com/xVM2yEt1OH

— Lisa Abramowicz (@lisaabramowicz1) April 30, 2018

Now what?

I expect those record shorts will get blown out of the water. Only a small minority see things the same way.

As part of Weekend Reading, Lance Roberts suggests Rates Still Headed To Zero.

According to Roberts, “Rates are ultimately directly impacted by the strength of economic growth and the demand for credit. While short-term dynamics may move rates, ultimately the fundamentals combined with the demand for safety and liquidity will be the ultimate arbiter.”

I agree.

Rear View Mirror

My position is Inflation is in the Rear-View Mirror.