Commitment Of Traders: The Future Thru Futures And Hedge Fund Buying

Following futures positions of non-commercials are as of February 23, 2021.

10-year note: Currently net long 2.8k, down 100.6k.

Bond vigilantes and central banks look ready for a duel. The former fired the opening salvo, with long rates rising meaningfully everywhere this week. In the US, the 10-year treasury yield (1.46 percent) rallied 12 basis points and was up as much as 27 basis points at Thursday’s high when rates reached 1.61 percent – a one-year high. Until January 5, these notes yielded sub-one percent.

A whole host of assets, not the least of which are equities, are hoping this does not continue (more on this here). Markets are beginning to sense that a sustainable recovery is just around the corner and that a tightening in policy comes sooner than central banks are telling us. The latter continue to convey that low rates are needed and that they would continue to support the bond market.

On Friday, some central bankers went into action. Bank of Japan Governor Haruhiko Kuroda reiterated his commitment to buying Japanese bonds. The Bank of Korea said it planned to buy ₩5 trillion to ₩7 trillion worth of government bonds by June. The Reserve Bank of Australia surprised markets by buying A$3 billion worth of three-year government bonds.

Currently, most of the action is in the long end of the yield curve. Once markets begin to reassess the short end, that is when the Fed’s hands will be forced. The two-year T-yield is the most sensitive in this respect. On Thursday, it rose five basis points to 0.17 percent, but nothing major. The fed funds rate is in the range of zero to 25 basis points. Besides, these notes were back at yielding 0.12 percent by Friday. It is worth a close watch.

30-year bond: Currently net short 156.3k, down 34.7k.

Major economic releases for next week are as follows.

The ISM manufacturing index (February) is published on Monday. In January, manufacturing activity dropped 1.8 points month-over-month to 58.7. Last April, the index made a post-pandemic low of 41.7.

Wednesday brings the ISM non-manufacturing index (February). Services activity in January rose a point m/m to 58.7. Last April, activity was suppressed at 41.6.

Labor productivity (4Q20, revised) and durable goods orders (January, revised) come out Thursday.

Preliminarily, 4Q20 non-farm output/hour increased 2.5 percent from a year ago.

In the 12 months to January, orders for non-defense capital goods ex-aircraft – proxy for business capex plans – jumped 9.1 percent to a seasonally adjusted annual rate of $72.9 billion, which was a new record.

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