2, 5-Year Spec Treasury Long Positions Surge, 10 Year Shorts Highest Since August: Is Major Curve Flattening Next?

Tyler Durden's picture

Back on March 18, Goldman Sachs advised clients to do an outright shirt on the 5 Year treasury (with a 2.3% target). And while our skeptical approach to Goldman recommendations has been no secret for a while (as in do the opposite), little did we realize just how pervasive the counter-squid trade has become. Amusingly, since Goldman recommended putting the trade on, net non-commercial speculative contracts (longs minus shorts) have surged to a multi-year high of 265,550 as of May 17. This is nearly double the 137,765 in net contract positioning when Goldman put its recommendation on. While it is unclear how much of a factor, if at all, Goldman's reco has been in this inverse trade recommendation (it appears even the dumb money among Goldman's clients is doing what the smart money and its prop desk is engaging in: namely doing the opposite of what the sell-side recommends), it is very clear that traders have congregated in the short end of the curve, with both 2 and 5 year net exposure near multi year highs, even as the 10 Year, which has seen a rise in yield over the past month, has just tumbled to the highest short exposure since August 2010. That said, will specs again be carted out head first as they were recently in the EUR and USD mauling? And if so, will the ensuing curve flattening result in another major leg down for the financials. The answer is certainly yes, as soon as pain thresholds on either side are breached and the profit taking begins (or the CME hikes Treasury margins).

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OldPhart's picture

Oh, boy!!  Such heavy responsibility.


Silver, Bitchez!!

trav7777's picture

Bill Gross must be dying of anguish right about now

RobotTrader's picture

Incredible how the 10-yr. yield was skying up to 8% in 1994 and James Carville said he wanted to be re-incarnated as a "bond vigilante".

Now, $13 trillion in debt later, the 10-yr. has plummeted to 3% and could actually get crushed if the yield curve flattens even more.

Proof that printing money faster and faster lowers borrowing costs even more.

tmosley's picture

Uhhh, yeah, a deluge of freshly printed money does make the cost of money go down.

Or did you forget that 70% of new issuance is being eaten up by the Fed?

Internet Tough Guy's picture

Momo, you are still the perfect fade. Love your theory that stocks and gold move together. How much did that belief cost you? LOL.

Thanks, Mega Bear
RobotTrader - Tue, May 17, 2011 - 04:39 PM

But after the horrific beating I took on my PM's this year, my chances of owning a Lexus now are slim to none. And slim just left the room....


tmosley's picture

lol, nice.  Up 30-100% and he still can't afford a Lexus.

Such a "beating".

lieutenantjohnchard's picture

but remember, he said he had a small, pittance of an ira with gold stocks that amounted to nothing. so how can one take a beating when you own nothing? then he said he bought a monster box of silver eagles at $5 per ounce which he sold at $43 per copy. how is that a beating?

the guy lies to perfect strangers when the truth wouldn't hurt anybody.

mynhair's picture

Is an 'outright shirt' like the one off your back?

Bleeping Fed's picture

+1 Tyler--"Counter-squid trade".  Love it.

Keri at Bankster Report's picture

+1, yes, lol!  I am going to promulgate that phrase, too; "counter-squid trading activity" could very soon become a valuable metric.

TooBearish's picture

Just hafta wait for GS BUY rec saying 10y goignto  2.875 or such for sell signal


Boston's picture

2.80% was my target to stop and reverse (go short) on the 10 year.  I went long 50%+ of the portfolio a couple of months ago.

But today, I wouldn't be surprised if it falls all the way to 2.60%, which still would be far above the 2.33% low of October 2010.

Either way, it feels good to be able to tell Goldman (and Bill Gross) to go fuck themselves.


mayhem_korner's picture

Up, up and away

in my beautiful, my beautiful [T-bubble] balloon...

LRC Fan's picture

Watching this market is like watching the WWE.  As soon as we try to test the lows, it's like the 1!!!-2!!!!.......kickout! at the last second.  It might touch a new low and then immediately bounce up 15-20 pts in about 2 minutes.  Hilarious.  Can't wait for the real sell off to finally commence and the Dow to plunge 1k+ in a day.  Oops, forgot that we can barely close -100.  Oh well. 

scatterbrains's picture

Could Pimple boy have been synthetic long the 10year but revealing a short look to his position and out of frustration with all this Joe blow buying competition, put out a "sell bonds"  signal just to get joe blow off his back?

Dolemite's picture

Hi. I'm a long time ZeroHedge follower.

Come follow my financial chart blog at http://deadcatbouncing.blogspot.com/ and see just how wrong someone can consistently be ;)

buzzsaw99's picture

BRK down again. I thought mega-disasters were supposed to be good for the eCONoME. Bonds bitchez. Don't touch my junk bitchez.

poydras's picture

When you run the system, you can make almost anything happen.

Shorting stocks or bonds during periods of money printing is definitely swimming upstream.

topcallingtroll's picture


Double posts and slow refreshes are common. They may be running out of server space.

Everybody join me and send them 50 bucks. Your credit card info is safer online than it is when you hand it to that waiter.

topcallingtroll's picture

Some of the posters on zero hedge junked a broker who posted a few months ago that everyone hates treasurys and he couldnt even get retsil interested.

He observed that he has never seen such lopsided sentiment.

Apparently he was sensitive to junks. HE hasnt posted since.

I would hope people on zero hedge might welcome contrary opinion and be willing to acknowledge when they themselves are just running with the herd and accepting conventional wisdom.

NotApplicable's picture

Given that the junkers seem to run in herd, I'd say it isn't likely.

As for the sensitivity, well, I hear they make a cream for that.

Personally, I only junk spammers and name-callers trying to pick a fight. I figure there is nothing wrong with alternate ideas (even stupid ones) seeing the light of day. Since even the stupid ones tend to discredit themselves, they still serve a social function in the ideasphere.

topcallingtroll's picture

His idea about treasurys so far is on target.

cocoablini's picture

The short middle of the curve seems the safest and most prone to FED printing. Its hard to imagine the 10 year( anyone here want their money locked up for 10 years?) being a good investment except at a much higher yield. Thats where the market can start enforcing vilgilantism.
If the market begins another crash, expect all bonds to move lower in yield- but thats unlikely since there aren't any real owners of equity.
Looks like the shorts are assuming the FED is going to lose the long end of the curve and its going to steepen out there dramatically. And when short rates plunge below administer FED rates( ie: you pay banks to store your money-which is what the Swedish meatball central bank offers as a solution) look for a race out of banks and into gold,silver and other assets. Unless CPI is massively negative, at which point people would pay a little to make sure their money isn't vaporized in the stock market or bond market. So, who is going to buy property?

Paralympic Equity's picture

Bear flattening on the way, I guess.

Or maybe even a nice butterfly, may deflation get back on the table.