The dealers just set a new record extreme of leverage against their bond positions at the end of February. Then they sharply pulled in their horns in early March. Scared much? Non-subscribers, click here for access.
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Or maybe they’re preparing for the worst in another way. After all, they are required to buy a significant percentage of every Treasury offering by the deal they made with the devil to be its Primary Dealers. And those offerings keep coming in a never-ending tide. The dealers have no choice but to take on inventory, and hopefully get rid of it as fast as they can under current circumstances. Non-subscribers, click here for access.
But what if they can’t? What if there aren’t enough buyers to relieve them of that excessive inventory in a market where prices are falling. Or should I say falling because of the excess inventory? There are too many bonds and the Treasury keeps issuing more and more and more. So the dealers hedge. They hedge by shorting Treasury futures. There’s a ready market for that. Non-subscribers, click here for access.
Until January, they hadn’t been doing too much hedging. There was some, but it wasn’t notable. They were pretty sanguine about the bond market and their small hedges. But then something changed. They hit a switch and started shorting the Treasury futures like mad. Now they have built up the largest short position in Treasury futures that they have had since 2022. They have enough futures shorts to more than offset the net long position in their Treasury coupon inventories. Non-subscribers, click here for access.
Something has changed in their outlook. We need to pay attention. This report shows you the change, tells you what it means, and what to do about it to protect yourself. Non-subscribers, click here for access.
Subscribers, click here to download the report.
This report shows the pictures that tell the story, and that tells us what to do about it.
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