Peeking Into The Future Through Current Hedge Fund Positions

Following futures positions of non-commercials are as of March 3, 2020.

10-year note: Currently net short 156.7k, down 117.3k.

It seems nothing matters.  On a day the bond market found out the US economy produced much-better-than-expected 273,000 non-farm jobs in February, the 10-year Treasury yield (0.71 percent) tumbled 22 basis points on Friday.  At session lows, rates, which were already under pressure, touched 0.66 percent – of course a new record low.  For the week, they gave back 42 basis points.  In two weeks, rates have been more than cut in half.  Unreal! 

Back in October 2018, the 10-year peaked at 3.25 percent.  As did equities, which then bottomed in December that year.  Since that trough through its recent record high, the S&P 500 large cap index jumped 45 percent.  The bond market never fell for it.  The 10- and 30-year continued lower, with the former suffering a major breakdown when last month it pierced through the lows from July 2012 and July 2016 – 1.39 percent and 1.34 percent, respectively. 

Equities are now catching up to it.

Only three weeks ago, non-commercials held 398,919 net shorts in 10-year note futures.  These notes were yielding 1.59 percent then.  As of Tuesday, they held 156,684 contracts.  Short squeeze helped drive the rates lower.  This technical factor definitely played a role in the recent collapse in yields, but at the same time the speed by which the drop has come deserves attention.  The bond market is forecasting meaningful slowdown in the economy, if not outright contraction. 

30-year bond: Currently net short 42.6k, down 28.1k.

Major economic releases next week are as follows. 

The NFIB optimism index (February) is scheduled for Tuesday.  Small-business optimism in January increased 1.6 points month-over-month to 104.3.  The index has remained north of 100 since December 2016, including record 108.8 in August 2018.

Wednesday brings the consumer price index (February).  Headline and core CPI respectively edged up 0.1 percent and 0.2 percent m/m in January.  In the 12 months to that month, they respectively increased 2.5 percent and 2.3 percent.

The producer price index (February) comes out Thursday.  In January, PPI and core PPI increased 0.5 percent and 0.4 percent m/m, in that order.  In the 12 months to January, they respectively advanced 2.1 percent and 1.5 percent.

The University of Michigan’s consumer sentiment index (March, preliminary) is on tap Friday.  In February, consumer sentiment rose 1.2 points m/m to 101.  Except for last August’s 89.8, sentiment has remained north of 90 since November 2016, five of which were 100 or higher. 

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