The Warehouse Gap Does Much To Fill In Why There Were Never Too Many Treasuries

Long bond futures, open interest. There really shouldn’t be much to glean from just the raw count of US Treasury futures contracts at any given time, yet throughout the past quarter-century, you could tell something was up whenever this particular contract’s open interest went up. More of long bond OI, the more it seemed (and still seems) trouble lurked (lurks).

I went over the background behind this quirk a few years back, reaching back all the way to the seemingly ancient days when LTCM was still a thing.

Open interest goes up when markets aren’t very sure about what’s in the future. Since UST’s are the settlement product for a variety of shadow trades, especially derivative FX, what’s being hedged here isn’t really UST yields or the US government’s credit risk.

It’s not a perfect indication by any means, but whenever open interest hits above 800,000 across the Chicago platforms it’s been in the past a sign of something.

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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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