Despite the powerful rally over the last several weeks that brought the US equity markets back to their all-time highs, treasury yields are up only slightly and are well below mid-September levels. Meanwhile, as Gavekal Capital notes, speculators are still carrying a hefty short position in 10-year treasury futures and options contracts, implying that yields have further to fall yet.
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Speculators are currently short about 160,000 contracts. Over the last several years, significant lows in yields have not been achieved until speculators became net long about 100,000 contracts, implying a 260,000 long contract delta that would need to be filled to achieve a low in yields.
Simply put, if history is a guide we are going to have to observe a massive change in positioning before yields make a low.
