CoT: Peeking Into The Future Thru Futures And Hedge Fund Buying This Week

Following futures positions of non-commercials are as of February 16, 2021.

10-year note: Currently net long 103.4k, up 23.9k.

The 10-year treasury yield had a mini breakout this week at 1.2 percent. This was preceded by a breakout six weeks ago at one percent. Rates had been making higher lows since last March when they bottomed at 0.4 percent, and particularly since August.

Nearest resistance lies at 1.4 percent, or between 1.4 percent and 1.5 percent. Friday, the 10-year (1.35 percent) rallied as high as 1.36 percent intraday.

The Fed must be watching this with keen interest. It has said it would purchase up to $120 billion/month in mortgage-backed securities and treasury notes and bonds. As of Wednesday, it held $6.3 trillion in these securities, up from $3.4 trillion last March, and is on pace to owning $7.6 trillion by year-end (more on this here).

Yet, the 10-year yield has a spring in its step. Foreigners have been aggressively reducing exposure to treasury notes and bonds. Last year, they cut holdings by $540 billion, yet this paled in comparison to the Fed’s purchases, which went up by $2 trillion.

With economic data beginning to turn and consumers flush with cash, unless foreigners do a quick U-turn, the Fed may have to significantly raise its pace of purchases in months to come. Else, higher rates begin to persist, and that will be a problem in a leveraged economy.

30-year bond: Currently net short 191k, down 12.2k.

Major economic releases for next week are as follows.

The S&P Case-Shiller Home Price Index (December) is scheduled for Tuesday. Nationally, home prices in November jumped 9.5 percent year-over-year, which was the steepest y/y appreciation since February 2014.

New home sales (January) are due out Wednesday. December sales were up 1.6 percent month-over-month to a seasonally adjusted annual rate of 842,000 units. Earlier in July, sales reached 979,000 units – the highest since December 2006.

Thursday brings GDP (4Q20, 2nd print), corporate profits (4Q20) and durable goods orders (January).

The advance estimate showed real GDP grew four percent in 4Q20. This followed a 33.4-percent surge in 3Q. Before that, the economy contracted five percent in 1Q and 31.4 percent in 2Q.

Corporate profits adjusted for inventory valuation and capital consumption shot up 27.4 percent in 3Q20 to $2.33 trillion (SAAR) – a new record. This preceded contractions of 12 percent in 1Q and 10.3 percent in 2Q.

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