Sorry Jeff: The Treasury Short Squeeze Hasn't Even Begun Yet

Back in August, when the market was growing increasingly confident that interest rates had nowhere to go but up, Doubleline's Jeff Gundlach tweeted that the "massive increase this week in short positions against 10 &30 yr UST mkts" was the "highest for both in history, by far" and "could cause quite a squeeze."

Four months later, with both 2y and 10y Treasurys surging...

... Gundlach took a victory lap when he tweeted that "we finally got that short squeeze" that he had predicted earlier.

Yet while directionally Gundlach was spot on with bonds undergoing one of the sharpest moves higher in recent years, the Bond King was wrong about one key aspect of the move: there actually has been virtually no squeezing of shorts.

While indeed Eurodollar futs saw a modest trimming of net shorts in recent weeks, this has been largely in response to recent fluctuations in the Fed's hawkish/dovish sentiment. However, one look at the Ultra-long future net specs shows that besides a modest trim in the past week, investor positioning in the long-bond has effectively never been shorter.

What about some shorter maturities? Here an even bigger surprise emerges, because in the Ultra 10Y futures, the Ultra 10Y future net specs just hit a new all time short: or instead of covering shorts, traders have been piling on even more shorts at the fulcrum security as yields have tumbled.

Finally, what about the short end? One look at the chart below shows that shorts are just shy of an all time high, which was reached last week.

In other words, while sellers have clearly been overwhelmed by aggressive buying in recent weeks as traders fled to the "safety" of US government paper and repriced the slowing US economy, while offshore investors demonstrated renewed appetite for US Treasurys, the single biggest catalyst for a sharp spike higher in price - a short squeeze - has yet to come.

Which in turn feeds into Gundlach's most recent, and quite bearish stock market forecast, which is rather self-explanatory especially if and when TSY rates gap sharply lower once the real Treasury short squeeze begins.