Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Head of Commodity Strategy
Summary: Hedge funds increased bullish commodity bets for a second week with precious metals and grains being the main contributors while crude oil and industrial metals were sold.
Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.
To download your copy of the Commitment of Traders: Commodities report for the week ending December 11, click here.
In crude oil, the relentless selling extending into an 11th week, albeit at a reduced pace. The combined net-long in Brent (+3.1k lots) and WTI (-8.6k lots) dropped to 256k lots, a three-year low. This occurred despite the Opec+ agreement to cut production over the coming months by 1.2 million barrels/day. The combined net-long – as per the chart below – is now more than 20% below the previous two lows in August 2016 and June 2017 from where crude oil rallied strongly on both occasions.
In soft commodities funds added fresh Arabica coffee shorts as the bean suffered a sixth straight weekly decline, its longest losing streak since July. Signs of ample supply from Brazil and a weaker BRL supporting an elevated contango, which short-sellers attempts to benefit from.