Covering (In) COT Blue

During that period dating back to early August, a historically massive bond short position was built up by leveraged money speculators in long bond (30s) futures. With the 30s thus setting the entire bond market narrative, clearly betting on Jay and his “money printing” machine combined with everything, it seemed, going in the right direction, including the US government’s rediscovered penchant for huge numbers, interest rates had nowhere to go but up.

While they did, they only went up a tiny amount despite such huge action all on that side. In fact, it’s more noteworthy how little the move really had been.

Nearly two months later, they’ve stopped going up at all in large part, it would seem because the bond shorts aren’t nearly so historically sure about where interest rates might be going. Going back to the second week in November, the top in yields amidst vaccine-phoria, the leveraged money shorts have been covering.

It’s still a huge net short position, but not nearly so historical as it had been up to that crucial point. That’s why there are still these intraday selloffs that go nowhere; the impulse to interpret every news event as UST-negative remains considerable. But with so little to show for all the effort, it doesn’t take an economist to figure out the risks might not be what the media (taking its opinions from Economists) always says about these things.

You have to wonder, as some of these speculators must be doing now, just why there’d be such an insatiable appetite for the safest, most liquid financial instruments given what has transpired over the past few months. It’s been a constant drumbeat of only positive developments.

March was eight and now nine months in the past and nothing’s gone legitimately, obviously haywire over that interim. No new Lehmans (at least as commonly understood). The world, finally, had everything going for it right down to what sure seems like an answer to the pandemic itself. The shorts should be winning huge.

Unless…

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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