CoT, What Noncommercials Are Buying, Futures Positions

Following futures positions of non-commercials are as of March 2, 2021.

10-year note: Currently net short 95.6k, up 98.4k.

Chair Jerome Powell apparently failed to calm bond-market nerves on Thursday – or at least that is how markets’ reaction would have us believe. The S&P 500 shed 1.3 percent and the 10-year treasury yield rose eight basis points to 1.55 percent in that session.

In reality, he was as dovish as he could get, essentially saying that the expected rise in inflation will be temporary and that this will not deter the Fed from continuing with its accommodative monetary policy. Post-pandemic, growth in money supply has gone through the roof, but not the velocity (more on this here)

But markets wanted more. They don’t like the fact that long rates are rising. The 10-year touched 1.63 percent intraday Friday before closing at 1.55 percent. Forget the fact that rates were higher in January 2020.

As things stand, markets are clamoring for some version of Operation Twist, in which the Fed sells short-term notes and buys long-term notes and bonds. The fact is that the Fed already spends $120 billion/month in purchasing mortgage-backed securities and treasury notes and bonds. But markets want some level of yield curve control in which the long end is capped.

Either way one looks at it, the Fed is between a rock and a hard place. Since the 2008/2009 financial crisis in particular, they have consistently acquiesced to markets’ tantrums. The latter is addicted to the so-called monetary morphine, and it is not easy breaking a bad habit. More often than not, dislocations follow.

30-year bond: Currently net short 190.3k, up 34k.

Major economic releases for next week are as follows.

The NFIB Optimism Index (February) is due out Tuesday. Small-business job openings inched up a point month-over-month to 33 in January. Last May, it dropped to 23. The sub-index’s record high 39 was hit three times between December 2018 and July 2019.

The consumer price index (February) will be out Wednesday. In the 12 months to January, headline and core consumer inflation increased 1.4 percent and 1.41 percent respectively. Over December, January was up 0.3 percent and unchanged, in that order.

Thursday brings JOLTs job openings (January). Non-farm job openings increased 74,000 m/m in December to 6.65 million. Last April, openings were merely five million.

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