Treasuries Besieged by ‘Idiot Money’: Record Shorts in Treasuries Paint an Ominous Picture for Bond Bears
By The_Real_Fly
As some of you might recall, in December of 2015, I went long treasuries, due to my belief that negative interest rates would wreak havoc across the investment landscape — bring with it a deflationary vortex that would consume all whole — especially equity holders. For the better part of 2016, this was the single best trade to be in — and I had it before anyone deemed it to be fashionable.
 
Then the elections came and a gigantic Trump induced squeeze commenced — helping rout bonds and buoy equities in record fashion. Looking back on that rally, it was a fucking month — literally nothing in the big scheme of things. Should bonds rally again, recapturing some of its former glory, no one will remember the faux inflation days of November-January — post Hillary annihilation.
 
Looking at the bond trade, it’s ripe for a reversion from the mean. After all, the most reprehensible people around, pavement apes and the like, are short bonds. These are the ‘Fast Money’ people — the same lads who bought mortgage bonds in 2007 and dot com hand grenades in the spring of 2000.
 
Via CFTC:
The amount of speculators’ bearish, or short, positions in
10-year Treasury futures exceeded bullish, or long, positions by
394,689 contracts on Jan. 10, according to the CFTC’s latest
Commitments of Traders data.
 
A week earlier, speculators held 344,931 net short positions
in 10-year T-note futures.
 
Net shorts in five-year T-note futures and Eurodollar
futures among speculators also climbed to record highs in the
latest week, while speculative T-bond net shorts rose to their
highest level since March 2012, according to CFTC data.
 
Net shorts in federal funds futures among speculators rose
to their highest since August 2015.
 
The rise in net shorts among these futures contracts
suggested this group of market participants believes bond prices
will resume their fall despite their rebound since mid-December.
 
Juxtaposing short data with actual yield action, proves, in fact, that the shorts are literally pavement apes — idiots devoid of reason — slaves to the base instincts that require zero thinking.
 
 
 
Yields on the 5 year treasury have doubled since our glorious leader, Donald J. Trump seized power, to 1.94%. Short contracts now outstrip longs by a record 1.1 million — making this Tower of Pisa trade indelibly lopsided.
In the end, “real money always wins,” said Tom di Galoma, the managing director of government trading and strategy at Seaport Global Holdings. “Speculators tend to get taken out. We’ve seen this occur several times in the last 10 to 15 years, where everybody thinks rates are too low.”
 
A shift back into Treasuries may already be starting. Fixed-income managers who oversee a combined $225 billion held 24.7 percent of their assets in U.S. government debt in the week through Jan. 17, according to Stone & McCarthy Research Associates client survey. That’s higher than the average of 24.2 percent in 2016.
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