Commitment Of Traders: Futures, Hedge Fund Positions This Week

Following futures positions of non-commercials are as of August 13, 2019.

10-year noteCurrently net short 414.3k, up 23.5k.

The 10-year Treasury yield (1.54 percent) shed 20 more basis points this week.  In fact, at the lows rates were down as much as 25 basis points.  Thursday’s intraday low of 1.48 percent was only 14 basis points from testing the low of 1.34 percent from July 2016, which was a successful retest of 1.39 percent set in July 2012.

In less than a year, the 10-year rate has been more than cut in half.  Yields peaked at 3.25 percent last October.  Amazingly, the long end of the curve (price) is rallying hard in a decent economic environment.  Going back to 3Q16, there has been only one quarter of real GDP growth with a one handle, which was 4Q18.  Four of the 12 quarters grew in the three percent range and the rest with a two handle, including 2Q19.  This is not bad considering the US economy just completed a decade of expansion.

In comparison, in 2012, between 3Q12 and 2Q13, three out of four quarters, the economy only grew 0.5 percent.  Then in 2016, between 3Q15 and 2Q16, there was only one quarter of growth with a two handle, with 4Q15 eking out a 0.1 percent gain.  Viewed this way, it probably made sense for rates to drop to new lows back then, but it is difficult to make a sense out of what is transpiring now – unless the bond market is pricing in substantial weakness in the economy in quarters to come.  Logically, thus, when the next downturn hits, rates will make newer lows.  Non-commercials, who continue to hold sizable net shorts in 10-year note futures, will contribute to this as they cover.

30-year bondCurrently net short 67.3k, up 11k.

Major economic releases next week are as follows.

Existing home sales (July) and FOMC minutes (July 30-31 meeting) are scheduled for Wednesday.

Sales in June dropped 1.7 percent month-over-month to a seasonally adjusted annual rate of 5.27 million units.  The cycle high 5.72 million was reached in November 2017.

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