Treasury Specs Are So Short, It Is Now A 4 Sigma Event

Tyler Durden's picture

With doubts that the "Trumpflation" trade is over creeping ever higher, leading to a precarious decline in the USD in recent days, and prompting comparisons to the Dollar's move at the start of 2016 when the greenback's ascent dramatically reversed...

... resulting in a pick up in the long end, which has outperformed the Dow YTD in 2017...

... it was surprising to see that traders, seemingly unfazed by recent price action, took their record shorts across the Treasury curve, and made them even recorder.

According to the latest breakdown of short positions by Deutsche Bank, speculators increased their net shorts by $7.7 billion in 10Y cash equivalents to $99.4 billion, a third successive week of record low positions.

The Breakdown by 5Y net specs...

... 10Y net specs...

... and 30Y net specs...

... shows just how aggressive the short pile up has been.

According to DB's calculations, the net short position is now a four sigma event, having grown to nearly four standard deviations away from mean, even after adjusting for open interest.

TY and FV net spec shorts reached new record highs of 395K (+50K) contracts and 437K (+27K) contracts, respectively. An exception was in TU futures where specs pared 35K contracts from their net shorts. Spec net short in Eurodollars also increased to a new record high of 2,442K (+326K) contracts.

And while other asset classes were relatively unchanged, with the recent surge in net specs in oil, nat gas and copper all moderating slightly in recent weeks...

... a separate observation by Bank of America suggest that the recent hedge fund infatuation with equities may be over, after hedge funds net sold the most S&P 500 contracts in a week since Jan. 2016., while the recent surge in Russell bullish bets also appears to have found a ceiling for now, and while buy-side net position in Russell 2000 was near record high (a "contrarian bearish" signal), a near term a move below 1347.2 would trigger a tactical bearish signal for the 1308.85 to 1300 area, according to Bank of America.

Of all of the above, keep an eye on the record(er) TSY shorts: a few more indication that the Trump reflation rally is over, or worse, inverting especially if the recent spike in positive macro news tapers off, we may witness one of the most violent short squeezes across the rates complex in history.

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SallySnyd's picture

Here is an interesting look at past bond market volatility:


Lessons from the past suggest that Treasury market losses could be very substantial with even a small increase in interest rates.





Jim in MN's picture

Tylers, I just sent in a two-pager called 'A Deplorable Proposal On Health Care Reform'.  It's at the 'tips' email.

Do with it as you please.

Lumberjack's picture

Moody’s Corporation (MCO) Reaches $864M Settlement Over Pre-Crisis Era Inflated Subprime Ratings

60B3's picture

drop in the bucket, they made that amount back many times over during the last ten years and not a one was sent to the Grey Bars Inn

dude duderson's picture

everyone pls move violently and erratically to the same side of the row boat at the same time

Restorative_Ally's picture

Must... Raise... Rates... Must... Crash... Economy...

HoserF16's picture

Nice charts. Don't mean a fucking thing in a Manipulated Market. Just like PM's pricing is a farce. PM's will remain Worthless under a Trump administration. Trump will do everything possible to maintain the dollars Status quo.


holdbuysell's picture

Wait for the global panic. Going to 1% or lower on the 10-yr.

So It Goes's picture

Do you mean a short squeeze is coming - driving the yield very low?

Ok with me, but some of that squeeze Treasury bet will go into gold.

holdbuysell's picture

Yes. Everyone is betting on higher interest rates. Won't happen unless the USD starts to fail, in which scenario, we would be talking about different topics and this would be a tertiary issue.

rccalhoun's picture

im thinking a lot more in the bond market to pin on trump -flation and a temporary hiccup in equities as well for more

ammo to oust trump.  eventually we are headed to NIRP.  trump is the wild card in the equation.

Kefeer's picture

Charles Nenner is predicting a market crash at the end of this year and World War (100 year cycle) is now.  Thus the oligarchs wanting to go to war with Russia and Chinaaahhh.

Hongcha's picture

The USD fails and we are not going to be sitting in this chatroom.  We will be tending gardens on median strips and fighting for cans of catfood.  We really don't want that, as tough as some like to talk about it.

Latitude25's picture

Gold.  It's what's for dinner.

King Tut's picture
King Tut (not verified) Hongcha Jan 14, 2017 9:30 PM

The last 70 years of human history(post-1945) has been an anomaly- what you are referring to is more the norm.

photonsoflight's picture

Doesn't matter what any of us want.

Richard Chesler's picture

The probability of a 4 sigma event is roughly 1/15,787.

Do you feel lucky punk?


MaxDemon's picture

But only if the markets behave in a a nice "normal" (Gaussian) manner, which they obviously do not.  But of course because "normal" statistics are easy to compute they get used, even though they don't fit at all well.  One more demonstration that the MSM and financial "experts" lie.  If they actually believed the statistics no one would ever take a 4 sigma bet, as you point out.

jm's picture

Short copper, long 30Y

buzzsaw99's picture

What we've got here is... failure to communicate. Some men you just can't reach. So you get what we had here last week, which is the way he wants it... well, he gets it. I don't like it any more than you men.

wisehiney's picture

Be right and sit tight.

Get paid to wait.

media_man's picture

So the herd is betting that the current 2.4 10 year UST rate will decline as opposed to creeping up to 3.0%?

riot-police's picture

Yea, I never know if they are suggesting selling causing rates to rise or buying causing rates to drop. So short positions causing rates to rise?

max2205's picture

But they won't let silver go up.....we'll let's see

yttirum's picture

By virtue of this being called "Trumpflation", I assume we can all say that Trump can move markets. With that understanding, what tools has he been using to do this? What consistencies have we seen from him? After answering that, what tools will he have after being inaugurated? Has anyone seen a president in recent history that can do so much with so little? I think this will force minds, especially traders, into a state they might not yet have experienced in their lifetimes. There will be a learning curve, so best get to working on it.

Latitude25's picture

Trunp is better at jawboning markets than the FED now and all he uses is Twitter.

Herodotus's picture

The dollar will collapse when QE4 is announced.

hedgiex's picture

I will join the short squeeze. 

Kefeer's picture

"we may witness one of the most violent short squeezes across the rates complex in history"- Yep


How do I trade that using TLT (puts or options - I forget)  Or is there a better way?  I know the inverse relationship; s are they saying the Bond values are going down and rates up or vice versa?

Nomad Trader's picture

It's important to remember that 'speculative net short' data is wildly inaccurate. There's a million other derivatives that aren't counted. And who's a hedger or a speculator is somewhere between subjective and rigged.

TwoHoot's picture

I don't know that is it inaccurate, but it is just a one-time snapsot in a market that changes by the second. The point is that even if it is accurate, it doesn't last long.

The committment of traders report is hard to understand because the futures market is a zero-sum market. For every long there is a corresponding short.

The point is that if speculators are net short, commercial interests are net long by exactly the same amount. If commercial interests are long futures, that means (by definition of a hedge) that they are short real ("cash" bonds in trade jargon) bonds. They will cover their long futures positions as they buy real bonds. The futures position is very temporary for the commercial account.

Speculators only add liauidity, they don't affect the "cash" market because, by definition, they don't have any real bonds.

Drawing any actionable conclusion from that is a fools game, IMO.

sevensixtwo's picture

Isn't the notional asset value of the Social Security trust priced in dollars because they estimate how many federal reserve notes the government can get by selling the treasury notes held in the trust?

Jtrillian's picture

If I was a diabolical central banker, this is what I would do. 

  • Hyperinflate the currency and call it something like "stimulus" while amassing all of that wealth to my friends and family. 
  • Make precious metals illegal and confiscate them while promoting a MSM campaign to demonize stackers as the ones destroying the economy. 
  • Use the social unrest that inevitably follows as justification to declare martial law indefinitely and put troops on the streets.  Enact legislation to effectively suspend the bill of rights.  Violently quell any protests (even peaceful ones).  Implement the police state while promoting peace and security to the masses via a MSM propaganda campaign. 
  • Round up and jail/eliminate anyone who speaks against these policies or who tries to organize resistance. 
  • After confiscating gold, re-issue gold backed currency in exchange for fiat currency.  Consider putting gold into the legal tender. Legal tender becomes the only allowable form of gold.  Continue to make other forms of PM's illegal for citizens to hold and confiscate at will.
  • Monitor all online and cell phone communications.  Use devicesequipped with a microphone to monitor conversations and look for key words.  Create a database of dissenters and deal with them accordingly (see above).
  • Control all social media.  Overwhelm them with false news so they don't know what is true and videos of pussy cats. Censor and cut off all voices of rational dissent like RT,Zerohedge, and Ben Swann.  Detain and imprison their employees as enemies of the state. 
  • Establish a propaganda campaign that promotes MSM as the only news source that can be trusted. 
  • Simultaneously establish a propaganda campaign that demonizes anyone who questions the government as a traitor and a terrorist.  Encourage citizens to report these individuals so they can be "interviewed".  Provide a hotline and offer a reward to those who report an individual that leads to an arrest. 
  • Establish a mass propaganda campaign to distract and divide the masses via MSM "programming".  Provide grants and other incentives for sporting events, video games, movies, and other "entertainment".  Divide the masses on race, religion, sexual orientation, geographical location, political ideologically, or any other differences that can be exploited.  Keep the people fighting with each other.  Use manufactured wars and the draft to further reduce surplus population.    
  • Finally, enslave and reduce the surplus population as soon as A.I. can replace them.  Methods to be used for population reduction to include: Illness and Sterilization via additives to food,water,vaccines.  Confiscate the remainder of their wealth under the guise of "medical treatments" to treat these problems.
  • If above plan fails, institute a nuclear war, retreat to safe bunker location, and re-emerge in 10 years after ash has settled.  Try not to nuke the planet to the point that life cannot survive after a period of 10 years.  Ensure that seeds, technology, and drones/robots are sufficient to secure your place in the new world. 

Live happily ever after with my rich friends. 

Luckily, I am not that person.  However, I truly believe this is the path we are on and unless we act to stop it, the wealthy psychopaths will inherit the Earth (if they don't destroy it in the process).  In fact, most people would be surprised to know that many of thest things are alredy happening.  


litemine's picture

In pockets maybe, if you suspect things that are related thoughts could arise .....what then, action ?

The journey of a Thousand Miles starts with One step unless using mechanizations.

allthegoodnamesaretaken's picture

Of course.  It is going to be 1929 all over again.  President Trump is our generation' President Hoover, and, Trump like Hoover has no choice.  This King, today, will have his Grant and Roosevelt, you can put money on that.  Give me control of the money and I won't care who makes the law- - - because, I can flatten the sob's anytime I want by taking their money away.  The chosen, are about to withdraw, take the money and run.  Is this what all the Hollywood crap (Streep, etc.) is about, a clean exit?  Uh, get away.  Oh yeah, they'll pretend to be in the same boat with us as we sink below the waves, never to hear from them again, or, not until we work through the misery and have a buck or two they can steal from us, again.  Then, they'll be back, ready to bleed us dry, just like all the times before.  They'll be gone though, for now, the hard times coming, sailing away, a big smile on their faces, like 9/11, high fiving each other, talking about the stupid goy.  Anybody who thinks the King will take this Presidential butt kicking he just took (we rebelled) and not tear our arses apart, well, he can't let it happen, we might get the wrong idea.  Get your bibles out and prophesy, the truth is: the King, is not able to do anything about the reset, it has to happen.  Of course, he picks the time, and size of it, and usually, it is to make a point, like, I am King, get that in your head's.  A Jubile in reverse, no forgiving this time, pay up or pay the consequences, oh heck, just pay the consequences that's all I want anyway, the King said.  If the meat doesn't suffer, it is no good, suffer then.  They burned the food rather than let the people have it to eat; the man said: you won't starve this winter and they didn't, but, he is dead.  Such terror we can't know, we were over here, we read their stories, in their newspapers, they weren't telling us the truth, like now; how could we even think our time would never come?  History tells us that working for the King, in his household, is the only thing we can do when these times arise, if we want to live at all.  This time, it seems, the King has a new staff, this time, the King, doesn't want us, doesn't need us, this time he has others in our place.  This time we get to know what it is like to be outside, looking in, watching the fat and sassy as they laugh and play, times are good for them, as they were for us, here in the US, WW2.  Of course, for our people, in Europe, the one's facing the terror, hearing the booms and bangs, fighting to get a bite to eat, dying on the streets, starved too death, murdered, tens of millions of them, well, for them, it wasn't so good.  We, in the US, relished in our prosperity as we sent our bombers to bomb the civilians.  Firebombed them.  Blood really did run down the streets, litttle children burned and butchered, making the picture of the little naked girl in Vietnam, running down the street, tears streaming down her face, look, not so bad, in comparison.  But, we could never know, this was kept from us lest we turn and say: NO MORE.  We, our fathers and their fathers, have murdered so many, even our own, for what, for whom?  When you figure that out then you will probably have come to a point where you might be interested in -what really did happen.  Look it up, the truth is here and there, on the Internet, you can find it, the truth, if you care to, if you try.  Probably, most of you don't want the truth, you just want the 'old lady' to go and see if your check is in the mail, or if she is in her period.  Scum of the Earth, you will get what you are owed paid to you, and you aren't going to like it.  Heck, it is only fair if you think about it, we won't be around when this King and his Court get theirs, but they will.  We can all go to our graves confident in the fact that we served him, the King, well, and we did kill as many of our people as we possibly could, because, he, the King, wanted us to.  Justified, in the fact that we didn' serve the King as best we could, why else would he deny us now?  It is us, like the silly old bible says, be sure your sins will find you out, oh, that's not in the bible?  How about the sins of the father onto the sons?  Well, anyway, see you all in heaven, right?