Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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COT: Euro long spikes; VIX short capitulates
Ole Hansen
Head of Commodity Strategy
Summary: During the week to March 24 the US Federal Reserve rolled out some of its heaviest artillery to announce open ended QE. This lead to stocks hitting a through on March 23 while the dollar short rose for a second week despite general Greenback strength.
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.
The below summary highlights futures positions and changes made by hedge funds across forex, bonds and stocks up until last Tuesday, March 24. A period that saw the US Federal Reserve rolled out some of its heaviest artillery to announce ‘open ended’ QE. It was a reminder of the moves they made in March 2009 which finally succeeded in stabilizing the global markets. During the reporting week stocks hit a through on March 23, the dollar continued to strengthen.
In forex speculators, with just a couple of exceptions, continued to cut both long and short positions across all ten IMM currency futures. Despite seeing the dollar rally extend into a second week the net position turned a bit more negative at -$6.6 billion.
While the Dollar Index was bought and JPY and CAD were both sold, the net dollar position still ended more negative due to continued strong buying of the euro. Four weeks of buying has taken the euro net-long to 61,290 lots ($8.3 billion equivalent), the highest since June 2018.
Bullish wagers on the Mexican Peso declined for an 8th week as the currency sank by more than 7% to hit a record low against the dollar. The net-long was cut by 35% to 21,979 lots.
Leveraged fund positions in bonds, stocks and VIX
Reductions of both long and short positions also continued in fixed income and equities. Substantial short-covering in the C’boe VIX contract reduced the net-short to just 18,708 lots, the least short in 14 months.
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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