Most Recent Commitment Of Traders: Peeking Into The Future Of Futures, Hodge Fund Positions Etc.

Following futures positions of non-commercials are as of August 20, 2019.

10-year noteCurrently net short 401.8k, down 12.5k.

The German government Wednesday sold €824 million in zero-coupon 30-year bonds, at a negative yield of 0.11 percent.  It offered €2 billion worth but there were no takers.  The Bundesbank was forced to buy the rest.

Globally, some $17 trillion of bonds currently yield negative.  Yield-hungry investors are desperate for safe assets.  Why then the rather lukewarm reaction to the German auction?  Time will tell if this represents a turning point – in all probability, it is not.  It is possible it was too large.  Or, investors are fearful of a repeat of 2015.  Back then, leading up to the start of QE by the ECB, bonds rallied, only to sell off once the program got underway.

The eurozone economy is weakening, and the ECB is expected to cut rates when it meets next month as well as announce other stimulus measures.  Globally, bonds have sold off for months.  The 10-year Treasury yield peaked last October at 3.25 percent and closed Friday at 1.53 percent.  Given how oversold they are, rates can rally anytime.  But, longer-term, the probable path of least resistance is still down.

As global economic activity decelerates at best and contracts at worst, there will be bids underneath the long end of the curve.  As things stand, the buyers are not playing these instruments for coupon payments.  Who plans to hold them to maturity anyway?  What they are losing in coupons will be offset by capital appreciation.  At least that is the hope.  So far, that is exactly how things have evolved.  With negative interest rates in Europe and Japan, the upward pressure on sovereign US bonds is clear.  Then again, negative rates for prolonged periods cannot be good and will not last.  Nothing goes up forever.  When that moment arrives, the disruption it will cause is probably too hard to model in.  Until then, it is bulls’ (price) ball to lose.

30-year bondCurrently net short 65.1k, down 2.2k.

Major economic releases next week are as follows.

On Monday, durable goods orders (July) will be published.  June orders for non-defense capital goods ex-aircraft – proxy for business capex plans – rose 1.5 percent year-over-year to a seasonally adjusted annual rate of $69.8 billion, within striking distance of record $70 billion set in July last year.

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