Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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COT: Dollar buying accelerates while VIX selling continues
Ole Hansen
Head of Commodity Strategy
Summary: The report covered a week where the prospect for a Phase One U.S.-China trade deal received a knock from the Senate vote on Hong Kong. The dollar was bid while stocks climbed, bonds saw 10-year yields drop to 1.78% and the yield curve flattening.
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.
Buying of dollars accelerated in the week to November 19 with the non-commercial long against ten IMM currency futures rising by $2.6 billion to $17.1 billion, a four-week high. All but two currencies were sold with CAD, EUR and AUD seeing the bulk of the activity.
Despite gaining some ground during the reporting week the EUR net-short nevertheless increased to 62,503 lots, the largest in four weeks. The AUD short rose by 16% to 47,240, its biggest since mid-October.
Leveraged fund positions in bonds, stocks and VIX
With just four full weeks of trading left before the markets wind down for yearend, leveraged funds held a near record long in Fed Funds futures while being the most bearish the S&P 500 Index since September 2017. The non-commercial net short in the Cboe VIX future meanwhile continued to rise and last week it reached a fresh record of 218,362 lots, i.e. $218 million per each 1% change in volatility. The selling is driven by the very steep forward curve where the spot VIX at 12.55% currently trades some 4% below the second futures month of January. Short sellers will earn the time decay as long the market remains calm and doesn't suddenly spike higher.
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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