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Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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COT: Dollar strength met by fresh selling
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 a worsening risk appetite helped send the dollar higher and global stocks lower. Surprisingly the broad dollar rally did not attract an expected wave of short-covering from speculators holding an elevated short. Instead they chose to sell into the rally thereby increasing long positions in EUR, CHF and JPY.
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 22. A week were risk sentiment received a setback after stock markets worldwide tumbled in response to a worsening pandemic, the U.S. Congress struggling to deliver more stimulus, U.S.-China tensions and an upcoming and most likely contentious U.S. election. In response to these developments, the S&P 500 dropped by 2.5%, the dollar index reached a two-month high while steady bond yields disguised a drop in breakeven (inflation expectations) and rising real yields.
During the week to September 22 the dollar rallied against all but one of the ten IMM currency futures tracked in this report. The Dollar index traded higher by 1% while the Mexican peso and Brazilian real both took a +3% hit. In response to this and perhaps somewhat surprising, speculators instead of reducing short dollar bets chose to increase it by 9% to $34.9 billion. Most of the Greenback selling occurred against the euro followed by Japanese yen and the Swiss franc while only the Canadian dollar and Russian Ruble saw net selling.
In the euro, speculators added fresh long positions as the EURUSD dropped towards €1.1700. As a result the net long jumped by 12,246 lots to 190,822 lots or €23.9 billion, just 10% below the recent record.
Leveraged fund positions in bonds, stocks and VIX
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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