Commitment Of Traders: Futures And Hedge Fund Positions, Sunday Jan. 31

Following futures positions of non-commercials are as of January 26, 2021.

10-year note: Currently net long 36.9k, down 9.7k.

Wednesday’s intraday drop to one percent has so far been a successful retest of the breakout three weeks ago, when the 10-year treasury yield (1.09 percent) rallied past nine-month resistance just under one percent. Subsequently, rates reached 1.19 percent on the 12th before retreating.

If bond bears (on price) regroup in earnest and manage to sustainably push rates up, this will have come against the backdrop of a Fed that is aggressively accumulating mortgage-backed securities and treasury notes and bonds to the tune of up to $120 billion/month.

As a matter of fact, as soon as the 10-year took out one percent, several Fed officials, including Chair Jerome Powell and Vice Chair Richard Clarida, made it clear they intend to continue to buy these securities, essentially nipping the budding taper talk bud.

The jawboning seems to have worked. The central bank would not like rates to sustain higher, given how leveraged the economy is – be it federal, corporate or household. But at the same time, bond bears too have put their foot down where they needed to. It remains to be seen if they can withstand the power of the Fed’s balance sheet.  

30-year bond: Currently net short 197.5k, down 1.6k.

Major economic releases for next week are as follows.

The ISM manufacturing index (January) comes out Monday. Manufacturing activity in December rose 3.2 points month-over-month to 60.7 – a 28-month high. In April, the index was down to 41.5.

The ISM non-manufacturing index (January) is published on Wednesday. Services activity increased 1.3 points m/m to 57.2 – a three-month high. In April, activity languished at 41.8.

Labor productivity (4Q20) and durable goods orders (December, revised) are due out Thursday.

Non-farm output per hour increased at an annualized rate of 4.5 percent in 3Q20.

Preliminarily, in the 12 months to December, orders for non-defense capital goods ex-aircraft – proxy for business capex plans – grew 8.4 percent to a seasonally adjusted annual rate of $71.8 billion – a new high. Growth progressively accelerated in the second half last year.

Friday brings employment data (January). Through December, from last February’s record high 152.5 million, there were still 9.8 million fewer non-farm jobs. Although from April’s low of 130.3 million, 12.3 million has been added.

WTI crude oil: Currently net long 542.5k, down 13k.

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