Weekly Commitment Of Traders Analysis

Following futures positions of non-commercials are as of November 19, 2019.

10-year noteCurrently net short 183.5k, up 34.7k.

Interesting dynamics are in play in the sovereign bond market.

In the 12-months to October, US budget deficit crossed $1 trillion.  This at a time when the economy is in its 11th year of recovery/expansion post-Great Recession!  Not surprisingly, the pace of federal borrowing has picked up speed, with net issuance of $934 billion in Treasury notes and bonds in the 12 months to October.  Historically, the two move hand in hand.  As do Treasury issuance and foreigners’ buying/selling, except of late the two have diverged.  In the 12 months to September, foreigners net-sold $171 billion in notes and bonds (more on this here).  Foreigners have been net sellers since January this year.  They hold $6.8 trillion in Treasury securities.  Hence the need to closely watch the current trend.

Arguably, less foreign buying is being offset by more buying by the Fed.  In the last couple of months, the bank’s SOMA (System Open Market Account) holdings went from $3.55 trillion to $3.63 trillion, with Treasury bills going from a negligible amount to $84 billion.  Mid-September, the Fed began to inject liquidity through repo operations due to stress in money markets.

The 10-year T-yield (1.77 percent) is worth watching in this regard.  After peaking in October last year at 3.25 percent, it fell all the way to 1.43 percent early September this year.  Yields then rallied to just under two percent before coming under pressure.  There is important trend-line support at 1.63 percent, which likely does not break should the majority believe foreigners will continue to reduce exposure to US sovereign.

30-year bondCurrently net short 47.7k, up 2.3k.

Major economic releases next week are as follows.  Happy Thanksgiving!

Tuesday, the S&P Case-Shiller home price index (September) and new home sales (October) are due out.

Nationally, US home prices rose at a 3.17 percent annual rate in August, up from 3.14 percent in July.  This was the first monthly rise after 16 drops in a row.  In March last year, prices were rising at a 6.49 percent pace.

Sales of new homes edged lower 0.7 percent month-over-month in September to a seasonally adjusted annual rate of 701,000 units.  The cycle high 729,000 was reached in June.

Wednesday brings GDP (3Q19, 2nd estimate), corporate profits (3Q19, preliminary), durable goods orders (October) and personal income (October).

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