Zerohedge has an interesting post out today called Treasury Specs Are So Short, It Is Now A 4 Sigma Event. Let's take a look at his charts and a couple of mine.
According to the latest breakdown of short positions by Deutsche Bank, speculators increased their net shorts by $7.7 billion in 10Y cash equivalents to $99.4 billion, a third successive week of record low positions.
Aggregate Treasury Spec Shorts
5-year Treasury Spec Shorts
10-year Treasury Spec Shorts
30-year Treasury Spec Shorts
Standard Deviations Treasury Spec Shorts
Eurodollars Spec Shorts
The above charts and comments from ZeroHedge via Deutsche Bank.
Explanations
- For every future short there is a future long, so the net is always zero. In this case, the commercial traders are long and the speculators are short.
- Eurodollars have nothing to do with euros. They are actually an interest rate play on US dollars. Short eurodollars is a bet that interest rates in US dollars will rise.
Yield Curve Monthly Chart
Yield Curve Weekly Chart
Short Covering Setup
- Belief in the Trump economy is extremely high.
- Treasury Shorts keep piling on even as yields decline.
- Those short from 3-4 weeks ago are already underwater.
- A very explosive short-covering setup is in play. All it takes is one very bad economic report and yields will plunge.
Related post: Trump Euphoria Sets In; Small Businesses Optimism Surges Most Since 1980: What's It Mean?
