US Treasury Shorts Hit Record High As Foreign Banks Dump Bonds

A roller-coaster week for rates and the dollar did not stop large speculators adding to their already record-high short positions across the entire term structure.

USD Shorts have started to cover aggressively...

Driven mostly by additions to EUR shorts...


BUT, record bond shorts keep getting record-er...

From the shortest-end (ED futures) to the belly (5Y at record shorts...)...

And the longest-duration 'ultras' also at record shorts...

Interestingly, as the Treasury curve has collapsed, it is clear from the chart below that large speculators are betting on curve steepening (reducing their shorts in 2Y TSY and adding to shorts in 10Y TSY) - so far it is failing miserably as the curve crashes to new cycle lows...

Putting this all together, large speculators have never been more short across the entire interest-rate curve - over $4 trillion notional bets in Eurodollars (short-term rates going higher) and around $117 billion notional equivalent short across the Treasury futures curve...

Large speculators are not the only ones having second thoughts about US Treasuries.

Foreign official demand for Treasuries continues to cool just as the U.S. is ramping up auctions to record sizes. As Bloomberg reports, the amount of U.S. government bills, notes and bonds held in custody at the Federal Reserve Bank of New York fell to $3.04 trillion as of May 9, the lowest since January and down from a record $3.11 trillion reached in March, data released Thursday show. Holdings have fallen for 7 of the last 8 weeks at the fastest pace since before the US election...

The dip may be a result of a combination of a “stronger USD that may be bringing intervention to support weaker foreign currencies, concerns over continued Fed tightening and some selling of U.S. Treasuries in response to geopolitical concerns,” Amherst Pierpont Securities global strategist Robert Sinche wrote in a note Friday.

The question is - are all these "investors" right? Is the most one-sided trade-positioning ever going to prove to be correct... and what happens when they are proved 'right' and start to unwind?

Judging by DoubleLine's Jeff Gundlach's favorite 10Y Yield indicator, Copper/Gold is signaling 10-Year yields should be 40bps lower...

Now that should shake out a few of the weaker hands in the record bond shorts?


JIMSJOE2 lester1 Sun, 05/13/2018 - 15:21 Permalink

Central banks as they are forced to. They do not like to hold large amounts of foreign currencies as they pay no interest. China is at least 10 years away from having a large and liquid enough bond market to compete. Europe has no federalized bond market backed by all EU members leaving treasuries as the only game in town.

    That is why those for years claiming the dollar and treasuries are doomed simply do no understand global macroeconomic events outside the US.

    Back in 2009 Armstrong Economic computer models forecast as we move forward countries in the EU will begin to collapse. By 2011 capital flight out of started moving into dollars and then US equities moving markets higher. The models back then forecast the Dow first to 22,000 then to 23,000 and to 40,000 all due to capital flight which is exactly what we have been seeing. By the end of 2016 there was so much capital converted from euros to dollars and then US equities there were dollar shortages in foreign markets. This is coming again as we move into the end of 2018. Spain's pension fund runs out at the end of the year. All French cities are flat broke. Over 50% of all German cities are broke. Banks, corporations and most nations are cut off from capital markets and the only thing propping them up is the ECB creating 60 billion euros a month and having the banks buy the debt and then selling it to the ECB. Draghi knows he must taper because if not the euro collapses much faster, (which is will anyway). The shit hits the fan at the end of 2018 with capital again moving into dollars and US equities. Where else are you going to park capital? Banks are broke, many countries are broke, many cities are broke, many corporations are broke and this is happening all over the EU.

     Forecast? The dollar will again gain massive strength against the wishes of the FED. US equities will rise with the acceleration of capital flight out of Europe again. This is what is really pushing markets and not some "cartel" propping up markets.

     Who are the clients of Armstrong Economics at $5 million a year? For starters take Norway's sovereign wealth fund which started to buy US equities in 2011 and now worth over $1 trillion. Take the Swiss central bank whose shareholders have cleaned house on dividends alone. Folks this is the smart money and while for the last 4 years the alt media has claimed the dollar and Dow will collapse any day, the smart money has been buying and cleaning house! They are getting ready to buy again!

    Back in July of 2016 the models forecast that if gold did not break the 1362 reversal level at July's close this would indicate the capital flight has again accelerated out of Europe and will cause massive dollar strength, move US equities higher and crush gold. Of course this is what happened. Today with gold above the 1300 resistance level at 1321 and the shit hitting the fan in the EU starting at the end of 2018, don't get caught as it attempts to move to the 1361 level where it reached in 2016 and then the shit hit the fan!

    Watch Europe and not dollars and US equities as the latter moves because of the events there.

In reply to by lester1

Dilluminati JIMSJOE2 Sun, 05/13/2018 - 15:29 Permalink

Agree on the Euro, anyone shorting the dollar up until the point when it is obvious that it still remains the least dirty shirt in the basket hasn't answered the question of parking cash for defined duration's of time in a fungible market.  I was reading gasoline going higher and thinking.. there is headwinds in accelerated growth and yet a robust economy.. people will look back and mavel how they missed that France and Germany were the EU and everyone was taken for a ride.…

In reply to by JIMSJOE2

GreatUncle Bam_Man Sun, 05/13/2018 - 17:18 Permalink

+1 and they will cut interest rates past ZIRP next time ... think NIRP.

To do that though they must outlaw cash first so people cannot remove cash to escape.

If you consider the whole Keynesian effect in a single instant of time not the today inflate and the tomorrows future it combines to form a NIRP system on the population.

In reply to by Bam_Man

el buitre lester1 Sun, 05/13/2018 - 17:02 Permalink

Who says the Fed is not buying the treasuries?  The Fed.  As Yoda would say, born truth tellers are they :-)  Of course it could also be the Exchange Stabilization Slush Fund, a humongus, secretive criminal part of the Treasury.  If neither of them continues to buy treasuries and they revert to their fundamental value (the 10Y well over 6%, I personally would see it fair value over 10%) the quadrillion dollar derivative market, which is about 70% bets on interest rates goes tits up and the global financial system goes down for the count.  No one who cares about profit or solvency would be buying any of this rigged sovereign debt (except of course the Italian 10 year bond at 2% or perhaps the Argentine 100 year at 8%. /s)

In reply to by lester1

mailll lester1 Sun, 05/13/2018 - 21:31 Permalink

The same people who will abruptly stop buying if they decide to crash the bond market.  And they are a secretive group who control the stock market also.  Who are they?  Well, that's a secret.  So when everything crashes, we won't know who to blame nor will we ever know.  

My conspiracy mind is at it again.

In reply to by lester1

NVTRIC Sun, 05/13/2018 - 14:00 Permalink

3% and rising, bitchez.  


I saw an article yesterday where some yahoo was saying 5% would be normalized as that was the average over the last 40 years.  


North of 10% in 2 years.  Credit killed the radio star.

MontgomeryScott NVTRIC Sun, 05/13/2018 - 14:57 Permalink

" (deleted) killed the radio star."

I watched this live (back in '81), on MTV. I was invited over to a friend's house, and he threw a pretty bitchin' party (with the usual 'party favors'). He had one of those projection TV's (REALLY fracking expensive), hooked up to a quadraphonic sound system (THE shit, at the time).

Joe Satriani came out with a song called 'Surfing With The Alien', a couple of decades later (to me, it was more like 'Surfing The Apocalypse'). I heard it on the radio (and bought the album), but by then, MTV was in to all that 'rap' bullshit:

"DEFICITS DON'T MATTER!" President Cheney (you know, 'DICK') said that on national TeeVee (shortly after Rumsfeld told the nation about the missing 2.3 Trillion FEDSCRIPS from the Pentagram (10 September 2001). I think it was one of those Sunday morning CBS shows ('Face The Nation' or some bullshit). The answer was in reply to a question along the lines of 'how in the fuck are we going to finance a total takeover of the Middle East on false pretences in order to secure the total control of the means of sale and transportation and control of the oil supply which the United States INC. depends upon for hedgemony, since President Kissinger took us off of the Gold standard and put this nation on the PETRODOLLAR standard'...

10% in TWO years, huh? AHH; the eternal 'optimist' speaks in the face of the very REAL possibility of a total collapse and world currency 'reset', I think.


In reply to by NVTRIC

datbedank Sun, 05/13/2018 - 14:06 Permalink

Ugh they're dumping bonds because the dollar is rising faster than the bonds' payout. Simple as can be! 

​​​​​​There will never be Weimar style inflation in the US when most of the money is in 1s and 0s. Want to remove cash from the supply? Delete some of the 1s and 0s, bam hyperinflation solved! 

Janet smeller datbedank Sun, 05/13/2018 - 14:55 Permalink

You can’t just delete the $ after it’s been loaned out. That makes it more impossible to pay back then it already is. Remember, the interest was never “created”. Just the principle. Is the fed going to pardon loans? I don’t think so. These arnt nice people. The money is worth nothing to them. It’s the power they’re after. And if you don’t owe them 1 cent, they have no power. 

In reply to by datbedank

MontgomeryScott Janet smeller Sun, 05/13/2018 - 15:22 Permalink

My 'take' when I read your comment:

"You can't just flush the toilet paper after it's been put on the roll. That makes it more impossible for the septic system to deal with it than it already is, after you wipe your ass and flush. Remember, the shit that sticks to it was never 'created' (by the toilet paper or the septic system); just the Charmin (and PLEASE don't SQUEEZE the Charmin!). Is the T.P manufacturer (Proctor and Gamble, just going to accept responsibility for the stinky, toxic shit that sticks to it? I DON'T THINK SO (because they have LAWYERS)."

If you use their so-called 'money' in transactions, then THEY ALREADY have an implicit claim (the original right of ownership and usury debt). It IS a 'FEDERAL RESERVE NOTE'. after all (NOT lawful money of the Constitution For The United States).

IF, for example. I own a car and a gas station and an oil company AND a car manufacturer; and you want to USE my car to get somewhere, I MIGHT (magnanimously) allow you to use it (but you have to fuel up at MY gas station, costing you a little something). OH, and there's the matter of 'insurance' and a 'driver's license' and 'gas taxes' and a lot of other shit (BUT OF COURSE, YOU DON'T OWE ME ONE RED CENT FOR THE USE OF MY 'CAR'; OR VEHICLE OF EXCHANGE; THAT IS).


Silly girl...


In reply to by Janet smeller

Janet smeller MontgomeryScott Sun, 05/13/2018 - 15:43 Permalink

I use their shitty FRNs because that’s what us collective retards decide to use, but I’m in 0 debt to anybody for FRNs. There is a difference. I don’t NEED FRNs to pay somebody back due to a contract. I can instantly start using any other means as a medium of exchange that myself and somebody else agree to. By the way, flushing to much toilet paper into your septic tank without giving it sufficient time to break down will cause problems. Also, applying shit to it before “sending it” helps the bacteria count in your septic system to help break it down, so your analogy sucks.

In reply to by MontgomeryScott

KimAsa Sun, 05/13/2018 - 14:13 Permalink

FED is unwinding QE, already unwound $104 B since last October. Don’t count on it to purchase these bonds until recession gets going.  10-year yield rising.

GooseShtepping Moron Sun, 05/13/2018 - 14:20 Permalink

When reliable correlations diverge, there remains a question about which of the variables is "in error." For example, Gundlach believes that according to to the copper/gold index, 10-year yields should be 40 bps lower. But why is not the case that copper/gold should be higher? Why is it yields that are wrong and not metals? Obviously these questions can only be answered by looking outside the correlation to fill in the missing pieces of the puzzle.

I think the one datum that can be held "come what may" is that interest rates are going higher. That is the one non-negotiable factor as the Fed unwinds its balance sheet. Therefore adjustments should be made elsewhere in the system to keep it consistent with this assertion. That means that, supposing the Gundlach correlation holds, the copper/gold index is going higher, too.

1033eruth Sun, 05/13/2018 - 14:28 Permalink

The foreign treasury bond holdings chart shows that foreign bond holdings were the highest since mid 2015, only TWO MONTHS ago in March.  What, any type of retracement is a "dumping"?  

I'm not sure how the world can have an infinite appetite for our debt.  All of the damn auctions should be under subscribed.  And yet here we are anyway, with plenty of demand for our debt and interest rates damn sure aren't soaring.  The pace is absolutely glacial.  

Dilluminati Sun, 05/13/2018 - 14:42 Permalink

I read all this shit on bonds and the predicted apocalypse and yawn.. 

Why have they got this wrong?

Demographics and aging as well as AI and robotics.

I expect the prime will seriously slow things down at just a 4.5% with wages not meeting demographics, AI, robotics, and globalism.

I think that the USA is now the worlds largest exporter of oil?…

I don't buy it.. the 10 year ain't sexy but it is a smart place to put IRA money if you are closer to retirement and are risk averse to the valuations of the markets which are actually very dependent on a just a small handful of stocks.

For those of you who were butt burnt buying gold and are awaiting for inflation to pinch hit for that mistake.. well next contraction in markets likely due to Euro issues and simply the nationalism arising from the insanity of welcoming immigrants, uhmm locking in that 10 year when we chase ZIRP again?  

It's a global market and you can't push a string in economics.

"so far it is failing miserably as the curve crashes to new cycle lows."

Deflation is simply too many debts chasing too few dollars

Yawn.. huge.. huge fucking yawn


Money_for_Nothing Sun, 05/13/2018 - 15:10 Permalink

Might they be dumping bonds to get dollars to buy their own currency with? US exporting inflation at too high a rate? Treasury bonds were the perfect collateral and desired more than cash (for rehypothecation). Deleveraging?

mo mule Sun, 05/13/2018 - 15:19 Permalink

Watch the reverse repo rates and the US Fed.  How much are they giving away to others so they can buy our debt. 

It's simple the snake eating it's own tail....... 

Like the banks are buying all the risky assets.  At some point in time all this will have to end and reverse.

turkey george palmer Sun, 05/13/2018 - 17:07 Permalink

Am I a simple minded fuck or is it plain that the fed is really not reducing it's balance sheet. It is removing treasuries as they mature and collecting the principal which it then loans out to mysterious borrowers in Brussels and Ireland and the Caymans to buy treasuries.

Haitian Snackout Sun, 05/13/2018 - 18:17 Permalink

Maybe they need the dollars to keep their currency in balance with all the ( dollars ) their countrymen have borrowed. Selling bonds to me reeks of pain. Not disgust.