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Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
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Head of Fixed Income Strategy
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COT: Dollar short reduced in week of broad strength
Ole Hansen
Head of Commodity Strategy
Summary: The Commitments of Traders reports highlight speculators positions and changes made during the week to September 22 in FX, bonds and stocks. A week were the dollar, at one point having its best week since April, was bought against all the ten currencies on our board. In bonds, speculators continue to accumulate a record net short in US T-bonds
Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.
This summary highlights futures positions and changes made by speculators in forex, bonds and stocks up until last Tuesday, September 29.
A week were the S&P 500 took a tumble before ending up by 0.6%. Key drivers were a boost to banks led by HSBC, stronger economic reports from China and continued hopes that U.S. politicians would agree a new fiscal stimulus deal. Elsewhere the dollar traded close to unchanged against a basket of major currencies, bond yields were a tad softer while the Bloomberg Commodity Index lost 1% with all the major sectors trading lower.
The dollar traded lower against EUR, JPY and GBP but higher against every other contract on our board below. At one point during the reporting week the dollar had its best period since April and as a result, the Greenback was net bought against all ten IMM currency futures and the Dollar Index. Overall it drove an 11% reduction in the dollar short to $31 billion. One-third of the change occurred against sterling which despite trading higher by 1% on the week still saw a major reversal from a long back to a net short.
Leveraged fund positions in bonds, stocks and VIX
"Record Shorts Show New Bets on Steeper Treasury Yield Curve" was the headline in a Bloomberg article. It stated that the non-commercial short position in longer-dated Treasuries hit a record in the week to September 29. In this update we use the more detailed breakdown between asset managers, leveraged funds (another name for hedge funds and speculator) and dealer intermediaries.
While the numbers differ the direction of the position does not. The leveraged fund net short reached a record 418k lots short last week. The almost controlled (by the FED) nature of the front of the curve out to ten years have seen speculators betting or hedging against rising inflation and rising bond yields move further out the curve.
What is the Commitments of Traders report?
The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.
In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.
In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.
Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.
They are likely to have tight stops and no underlying exposure that is being hedged. This makes them most reactive to changes in fundamental or technical price developments. It provides views about major trends but also helps to decipher when a reversal is looming.
The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.
In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.
In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.
Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.
They are likely to have tight stops and no underlying exposure that is being hedged. This makes them most reactive to changes in fundamental or technical price developments. It provides views about major trends but also helps to decipher when a reversal is looming.
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