Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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COT: Surging yields drive broad commodity weakness and long liquidation
Ole Hansen
Head of Commodity Strategy
Summary: Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to Tuesday, October 3. A week that saw worsening risk appetite across markets in response to a continued surge in bond yields and the dollar reaching a fresh high for the year. In commodities, the market responded to a broad sell off by cutting bullish bets across 24 major futures markets by 15% to a four month low.
Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities while in forex we use the broader measure called non-commercial.
What is the Commitments of Traders report?
The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.
Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)
The main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's are:
- 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
Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.
Macro Digest: Middle East in focus
Equity update: Middle East tensions boost defensive sectors
Commodity update: Crude oil jumps on fresh supply risks with the Middle East in focus
This brief summary highlights futures positions and changes made by hedge funds across commodities and forex in the week to last Tuesday, October 3. A week saw a worsening risk appetite across markets in response to a continued surge in bond yields, with the US 10-year yield rising 26 bps to reached a fresh 16-year high, while the dollar reached fresh high for the year. In commodities, the market responded to a 1.8% broad sell off in the Bloomberg Commodity Index by cutting bullish bets across 24 major futures markets by 15% to a four month low.
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