TRENDING:

XAU/USD

EUR/USD

Small speculators pile into treasury shorts, is a short squeeze coming?

Mike “Mish” Shedlock's Sitka Pacific Capital Management,Llc

Across the yield curve, small speculators have plowed into Treasury short positions.

Treasury Bear Frenzy

Bloomberg reports Treasuries Bear Frenzy Was the Biggest on Record Last Week.

Bond bearishness hit a record level last week as investors piled into short bets on Treasuries.

An aggregate gauge of the change in net non-commercial positions across the Treasuries futures curve dropped by the most on in record, according to the latest Commodity Futures Trading Commission data. The change was equivalent to $45 billion in benchmark Treasuries net short positions, according to TD Securities strategist Penglu Zhao.

“Specs piled into shorts across the curve last week as the market became agitated on Fed tapering and early hiking risks,” Zhao wrote Friday. “Dealers and levered funds were net buyers, while asset managers and other investors are net sellers.”

Barchart 10-Year Treasury COT

That is a chart of 10-Year Treasuries courtesy of Barchart.

On the surface the above chart looks extremely ordinary.

Shorts are nowhere near record levels as you can by looking at the red line (commercials) who take the opposite side of the speculators.

Closer inspection of the data is more interesting.

The commercial traders are only net long 278,002 contracts now vs. 852,899 on August 20. We are not close to a record now.

But look who is leading the way. Small speculators are net short a whopping 182,391 contracts.

CotBase 10-Year Note Futures

CotBase has a subscription but it does provide one year for free. It plots small speculators on a different scale.

It's the small specs who are plowing into the shorts on 10-Year Treasuries.

I went back 5 years on Barchart and I do not spot a larger short position by the small specks on this contract.

CotBase 5-Year Note Futures

CotBase 30-Year Bond Futures CotBase Interest Rate Complex 2021-03-04

CotBase Interest Rate Complex

Small Specs Lead the Shorting

It's pretty clear who is leading the way on interest rate futures and it is also clear why.

Powell Confirms Easy Money Until the Cows Come Home
Deficits are rising as a $1.9 Trillion Covid Spending Compromise Just Passed the Senate
Fed Hubris: Housing Prices Show the Fed is Making the Same Inflation Mistake

The concern is easy to see, too easy in fact. Futures trades so "obvious" that small specs pile on in record numbers don't get rewarded for long.

I suspect a strong rally in bonds will soon wipe out the latecomers into these trades.

Author

Mike “Mish” Shedlock's

Sitka Pacific Capital Management,Llc

Mike “Mish” Shedlock is a registered investment advisor for SitkaPacific Capital Management.

GBP/USD bounces off lows, back above 1.3200

After bottoming out near 1.3160, GBP/USD manages to regain a bit of shine and reclaim the 1.3200 mark and beyond at the end of the week. Stronger-than-expected UK Retail Sales data seem to be helping the British Pound limit its losses, while the chaotic UK political environment keeps the bulls at bay for now.

EUR/USD looks consolidative around 1.1460

EUR/USD stages a modest rebound after slipping to a three-month low below 1.1420 at the end of the week. That said, the pair now looks to consolidate humble gains just above 1.1460 despite growing uncertainty surrounding the next round of US-Iran negotiations, which keeps the US Dollar’s downside contained.

Gold slips back to six-day lows, targets $4,100

Gold retreats for the third consecutive day on Friday, eroding gains seen in the first half of the week and approaching the key $4,100 mark per troy ounce. Indeed, the precious metal continues to face headwinds from the Fed's hawkish stance and renewed uncertainty surrounding the next round of US-Iran negotiations.

Breaking: Iran closes the Strait of Hormuz amid ceasefire deal violation

Iran says it is closing the Strait of Hormuz after accusing the United States (US) and Israel of violating the ceasefire. According to Iran, the decision came over the continued Israeli strikes in Lebanon. The Iranian Revolutionary Guard Corps Navy issued a warning to all vessels: "Do not approach the Strait of Hormuz; otherwise, your security will be jeopardized."

The Iran war didn't break the US economy, but what happens next?

Nearly four months after the start of the Iran war, the US economy remains remarkably resilient. While the conflict initially triggered a severe disruption to global energy markets and a sharp rise in Oil prices, recent diplomatic progress between Washington and Tehran has eased concerns about a prolonged supply shock.

Regime change: Inside Kevin Warsh's first move to make the Fed unreadable on purpose

The rate did not move. That was the least interesting thing about Kevin Warsh's first meeting in charge of the Fed. The FOMC held its benchmark at 3.50%-3.75% for the fourth straight meeting, exactly as priced, and then the new chair used his first press conference to dismantle the machinery the market has leaned on for a decade.