CoT This Week: Futures And What Hedge Funds Are Buying

Following futures positions of non-commercials are as of May 4, 2021.

10-year note: Currently net short 7.2k, up 63k.

Treasury Secretary Janet Yellen stated on Tuesday that “it may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat.” Equities sold off in that session, tech in particular. But they soon regained their footing. By Friday, the S&P 500 rallied to a new high.

Speaking at a different event later Tuesday, Yellen walked back her comments, saying any price increases would be transitory, which is the line used by the Fed. Besides, even on Tuesday, the bond market pretty much yawned. The 10-year treasury yield fell two basis points to 1.59 percent and closed the week at 1.57 percent, down five basis points for the week.

More importantly, two-year yields were unchanged at 0.16 percent on Tuesday, ending the week at 0.15 percent. This section of the yield curve tends to be the most sensitive to interest rate policy, and the Fed tends to pay close attention to the message thereof.

Until then, the ongoing accommodative monetary policy in all probability continues – using both conventional (fed funds rate) and unconventional (balance sheet expansion) tools. As things stand, the Fed is focused on the labor market and not so much on inflation.

It is a different discussion altogether if by doing so the central bank is painting itself into a corner, which is what Yellen seems to be suggesting (more on this here).

30-year bond: Currently net short 131.8k, up 15.2k.

Major economic releases for next week are as follows.

On Tuesday, the NFIB Optimism Index (April) and JOLTS (March) will be published.

Small-business job openings in March rose two points month-over-month to 42 – a new high.

Non-farm job openings jumped 268,000 m/m to 7.38 million in February. The record high 7.57 million was scored in November 2018.

The consumer price index (April) is due out on Wednesday. In March, consumer prices rose 0.6 percent m/m and 2.62 percent year-over-year. On a core basis, prices respectively increased 0.3 percent and 1.65 percent.

Thursday brings the producer price index (April). March’s producer prices rose one percent m/m and 4.2 percent in the 12 months to March. Core PPI increased 0.6 percent and 3.1 percent, in that order.

Retail sales (April), industrial production (April) and the University of Michigan’s consumer sentiment index (May, preliminary) are scheduled for Friday.

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