Bond Bears Panic, Cover Shorts At Fastest Pace Since Brexit; But Rate-Hike Bets Top $3 Trillion

Tyler Durden's picture

Last week saw the largest drop in aggregate Treasury short positions since Brexit. Ironicaly, while bond bears felt the squeeze, traders piled into Eurodollar shorts (increased rate-hike bets) sending the short-end's positioning to record highs.

Across the entire Treasury bond futures complex, shorts covered over 200,000 10-year-equivalent contracts (around $20 billion notional), but as is clear below, the net short - while the smallest since December 2nd - remains extreme relative to norms over the last 6 years.

At the same time, Eurodollar traders added to their rate-hike bets - extending the net short to a record 3.009 million contracts... (over $3 trillion notional)

The lofty fiscal expectations surrounding President Donald Trump have begun to subside.

The short-dated skew between payers and receivers on 10-year yields is flat, with the risks now more symmetric for rates, allowing investors to position for outcomes following the U.S. fiscal debate. Steeper skews would indicate payers richening relative to receivers, signaling expectations for higher rates.

Additionally, as Bloomberg's Tanvir Sandhu notes, another factor that bears need to contend with is overseas demand for Treasuries. The cost of currency-hedging for dollar assets has cheapened for Japanese investors, with the three-month basis now at the two-year average. Japanese life insurers typically buy domestic bonds in March and foreign bonds in the first half of the fiscal year that starts in April. This may help keep U.S. 10-year yields below 3 percent.

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38BWD22's picture



10 Year rates down 5 basis points to 2.369%:

("Rates" tab near top of page)


Truther's picture

Is the fat lady singing yet?

red1chief's picture

The fat lady may or may not be singing but his space key certainly is.

Raffie's picture

Nikkei 225 is taking a crap right now if that helps.

-301.61 right now.

red1chief's picture

Something's up with your space key, it's being hit too much. Have you tried to fix it? 

Dilluminati's picture

wtf they look like with no repeal and replace and no tax cuts?

suppose we get angry voters in the EU?


Ink Pusher's picture

Hmmmmm......  Who is crazy enough to buy treasuries today?

Another ride around the merry go round anyone?


"Yield Leap by
Liz McCormick/Bloomerg March 6, 2016, 7:00 PM EST March 7, 2016, 4:02 PM EST

Treasuries tumbled March 4 after a report on U.S. job growth sustained speculation the Federal Reserve will raise interest rates this year, following liftoff from near zero in December. The yield on the benchmark 10-year note was at 1.9 percent Monday in New York, after touching 1.53 percent Feb. 11."

The 10-year has also grown costly in comparison with other maturities. This month, a measure known as the butterfly spread showed it reached the most expensive since at least 2001 relative to five- and 30-year obligations."

Dilluminati's picture

You see 10 year at 2.85 you should cosider it if it is FDIC insured, now granted that isn't big boy consideration..

I'll take it, actually got 2.9 (no fee)

And here is the 10 year T bill

If GDP and robotics, AI, and naked pricing along with an aging consumer produces 2% GDP (that's the happy assumption) then I'll invest those coupons into no-fee investments annually.

The 10 year is distorted due to the banks.

If things start to heat up I'll do Tips until I see a bear on the MSM. (grin)

I'm patient.. rule one don't churn

Ink Pusher's picture

I am out of the 'paper game' entirely. Physical bullion is the only truly solid play other than Military vehicles and weaponry at the moment.

If it can be easily manipulated, you will not find my money there.

The bottom line is ;Unless they manage to get the 10 Yr hammered down to back below 2.4% , Chicken little's prophecy will likely come true.

We've seen this spread before, we already know that it is unsustainable. Short players have money to burn or are either insane and reckless.

It almost seems as if everyone is following the failed Japanese model eh?

buzzsaw99's picture

it's all fun and games until somebody gets their tit caught in a wringer.

btw - i do not feel that the treasury shorts have much to do with treasury rates. the momo longs the previous few years going into overshoot probably had more to do with it than the shorts. however, i do feel that there is a serious mispricing  for things other than treasurys (corporate & real estate bonds, stocks, gold, etc.) that will be resolved sooner or later which will tend to push toward lower long term rates, not higher.

Yen Cross's picture

   Fiscal year end is this week for Japan. Yes they will be investing overseas again next week. [selling yen]

  I'm starting to build a short yen trade. Also, the $usd tends to lead equities on drops[selling] so based on equity levels and the scale of the $usd drop it's probably within 1-1.5 % of it's bottom assuming equities retrace back to the November [pre election] levels.

 The $usd becomes a safe heaven trade as global equity selling accelerates. [ foreign capital pours into treasuries]

 * the Dow and ES are sitting on the 50 day average currently.

izzee's picture

The Costanza Trade

Thank You Red Queen Janet for making it soooooo clear on the 15th that "rates" would be rising.

devo's picture

Yet...I can't legally bet one dollar on the Final 4.

red1chief's picture

Bill Gross made a good case for the bond bull continuing in the event the 2.6% level on the 10-year held. It held, the Trump rise in yields is being unwound, and the negative rate scenario many were expecting to develop last year will be back on the table next year.

Dilluminati's picture

That is my assumption, I talked with a guy on the phone two of them.  Both in their thirties "answering a phone" with their expertise.  Bought total of 260 contracts 10 CD's.  Told em straight up that we're going negative interest rate.

Did short ladder in 75% of it which I had the greater autonomy over, did ten year for what I needed there in ten years.

But the bond market is where the value is at.

Lets see if I read the tea leaves there correctly, you all can mock me if I get that wrong. 

Sky flyer's picture

Now the pain comes. It will be blamed on trump.

charlie303's picture
charlie303 (not verified) Mar 26, 2017 10:09 PM

Martin Armstrong said on Mar 12 there would be a EURUSD bounce.

Be careful shorting EURUSD going into debt ceiling and tax reform talks.

World Cash Day's picture

The markets are rosy until Winter 2019 - that is when the Russians cut gas supplies to Europe.

No longer their partners.