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Forget Sentiment 'Surveys'; Investors' 'Positioning' Has Never Been So Bullish European Credit

Tyler Durden's picture


While every investor you ask is vehemently concerned about any and every risk and sentiment surveys suggest there is a 'wall of worry' to climb, once again the truth is in the positioning. Based on DTCC data, via Morgan Stanley, investors' net bullish CDS positioning in European investment grade credit has never been higher - having surged recently. Critically, note that that investment grade credit index has a major exposure to European financials. Adding to the reality of positioning and self-deceiving biases of all those so afraid to miss the CB rally or look like fools in the face of momentum, bond markets are even more ebullient (as European bond spreads trade back under CDS spreads) and European credit implied volatility trades below realized vol - an even more unusual occurrence than in VIX currently. It seems the real pain trade is a risk flare in European financials once again - as opposed to all those who 'hear' everyone's bearish.

European Investment Grade Credit CDS positioning has never been more bullish...


and at the same time, bonds are trading even richer (lower in spread than CDS)...


and implied volatility has dropped below realized volatility in a show of confidence/complacency/bullishness...


Charts: Morgan Stanley


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Mon, 08/13/2012 - 14:44 | Link to Comment Ahmeexnal
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Mon, 08/13/2012 - 14:46 | Link to Comment buzzsaw99
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this too is bullish

Mon, 08/13/2012 - 14:48 | Link to Comment slaughterer
slaughterer's picture

this is EXTREMELY bearish


Mon, 08/13/2012 - 14:49 | Link to Comment buzzsaw99
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Mon, 08/13/2012 - 18:43 | Link to Comment DeadFred
DeadFred's picture

You mean it isn't a good thing when everyone is on the same side of a trade? S/

Mon, 08/13/2012 - 14:47 | Link to Comment Cognitive Dissonance
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"Abandon ship. She's about to blow."

Let me get ONE last trade in Captai...................

Mon, 08/13/2012 - 14:48 | Link to Comment SheepDog-One
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EVERYTHINGS comin up ROOOOSSSES....uh huh yea sure...

More like 'ShitFlowers'

Mon, 08/13/2012 - 14:47 | Link to Comment Stackers
Stackers's picture

"Investment grade credit" ....... are those like AAA rated Subprime Mortgage Backed Securities ?

Mon, 08/13/2012 - 14:48 | Link to Comment Bastiat009
Bastiat009's picture

"investors" are extremely bearish and bullish. stocks will collapse and go up. gold price will double and fall.

Now that I have read the "news" I feel very well informed.

Mon, 08/13/2012 - 14:48 | Link to Comment Hype Alert
Hype Alert's picture

Central banks are ringing the free money dinner bell.

Mon, 08/13/2012 - 15:11 | Link to Comment Winston Churchill
Winston Churchill's picture

Buy the rumor,sell on the news.

One hell of a firesale coming.

Mon, 08/13/2012 - 14:48 | Link to Comment poor fella
poor fella's picture

On expectations of ____________?

Mon, 08/13/2012 - 14:49 | Link to Comment WALLST8MY8BALL
WALLST8MY8BALL's picture

Assume the position! Thank you sir may I have another!

Mon, 08/13/2012 - 14:52 | Link to Comment Jason T
Jason T's picture

Soros said back on June 3rd Europe has 3 months to address problems..

As of today, I don't believe it's been fixed.. 

Mon, 08/13/2012 - 15:00 | Link to Comment slaughterer
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Soros got remarried again in the meantime.  His opinion does NOT count. 

Mon, 08/13/2012 - 14:54 | Link to Comment govttrader
govttrader's picture

If history repeats itself...prices will either go up or down...

Mon, 08/13/2012 - 14:54 | Link to Comment Scalaris
Scalaris's picture

Well, if there ever was an indicator to ride the slope downwardly..

Mon, 08/13/2012 - 15:01 | Link to Comment Flaming Ferrari
Flaming Ferrari's picture

Very busy over here. Must get all the US indices into the green. Almost there with only an hour left to go.


Mon, 08/13/2012 - 15:02 | Link to Comment Lost Wages
Lost Wages's picture

Whatever is worst for the most number of people, that is what will happen.

Mon, 08/13/2012 - 15:05 | Link to Comment distopiandreamboy
distopiandreamboy's picture

It's all downhill after the monthlies expire.

Mon, 08/13/2012 - 15:07 | Link to Comment 101 years and c...
101 years and counting's picture

once again, the devil was able to convince the world he didnt exist. 

Mon, 08/13/2012 - 15:08 | Link to Comment orangegeek
orangegeek's picture

Another day another gong show.  USD down, gold down, markets down (sort of), CRB down....and the best of all - Euro up.



Mon, 08/13/2012 - 15:12 | Link to Comment oogs66
oogs66's picture

If clients are bullish, the street is massively short, no?

Mon, 08/13/2012 - 15:29 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

not necessarily, at least to moi

the bankster holding companies hold and control virtually all the corporations

that ain't short, comrade oogs_66!

but yer point is well-taken:  that they have "faded" the muppets;  however, if they have "hedged the fade" (which they prob have b/c that is their game)  then the muppets are exposed to the downside

but as tyler sez:  they didn't miss the 'move'!  L0L!!!

Mon, 08/13/2012 - 15:26 | Link to Comment Dick Darlington
Dick Darlington's picture

Must be the same "investors" Der Spiegel wrote abt. The one's who are getting ready to face the collapse of euro death zone. By buying european credits. roflol! They are probably the same "investors" who were getting ready for the collapse of the US housing bubble by going long synthetic and other sub prime waste.

Mon, 08/13/2012 - 15:28 | Link to Comment GERxit
GERxit's picture

If you are an insurer and you got NOMINAL liabilities to match this makes perfect sense. These guys don't even care when yields start going up and spreads widen - their liabilities will also do. So they don't move positions essentially. This is the reason why you get almost no supply at the cash market while the iTraxx is bouncing around.

So please tell me MS... are you publicizing this research to get some more physical supply in the market again? Need some comissions???


I know it's all bullshit this way but it can remain in this bullshitty situation for quite a while - so don't get too anxious about shorting this. And be careful which instruments you choose!

Mon, 08/13/2012 - 16:01 | Link to Comment dcb
dcb's picture

I think I have to vote this week the worst trading week I can remember. I'd like to take a poll. it's really one with little or no direction, although we haven't had the proper sell off to get to a buy time slowly drifting lower at least on uyg. this too 3 days before, now five it's insane, shows everything wrong witht the capitial markets

Mon, 08/13/2012 - 17:09 | Link to Comment Nobody For President
Nobody For President's picture

The Dog Days of August...

Wake me up after Labor Day.

Mon, 08/13/2012 - 17:19 | Link to Comment Itch
Itch's picture

Technically, the real black swan is that Europe finds its feet again. Imagine the amount of head scratching if that happens? People will be jumping out of windows screaming on the way down..."we just never seen this one comming, it was impossible to predict".

Tue, 08/14/2012 - 01:27 | Link to Comment dunce
dunce's picture

There is a report that the commercial mortgage market is near death in spain and Italy with only two or three transactions in the quarter.  Suppose that people with real assets do not want to convert them to cash because there is no way to protect the cash or to get it to a safe haven in another country. The majority of investors are rational and logical, the uncertainty in Europe is caused by irrational politicians. Investors must wait to see what the fools do before countering their action.

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