Primary Dealers remain modestly net xxxx the bond market, including both their securities portfolios and futures hedges. That’s a problem, considering not only what’s going on right now, but what has been going on for the past 3 months. Non-subscribers, click here for access.
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Technically Treasuries are near an important inflection point on the charts. Repo shows extended leverage among dealers. They are slightly xxxxx overall, which isn’t bullish for the big picture. They are leveraged to the hilt and they’re taking hits. Non-subscribers, click here for access.
Hedge fund positions in Treasuries have blown the basement out of their record short position. The mind boggling short position is based on a hedged carry trade that just keeps getting bigger and bigger. This is partly a function of ever increasing supply. Non-subscribers, click here for access.
That has the potential to trigger an unstable unwinding. So far it hasn’t. The rally goes on and their short position keeps getting bigger. It’s not clear how long it will be until this breaks. We must remain vigilant for a sign, whether it be in the liquidity data or the technical side. Non-subscribers, click here for access.
Between both the dealers and the hedge funds we see these enormous positions, extreme leverage, and one-way hedged bets. Whatever way this breaks, the move should be big and fast in both bonds and stocks. However, we don’t yet have a tell on which market takes the hit, and which takes off. Or maybe with the extreme leverage, they both implode. Something big is coming, but when and how are still unclear. We need to be vigilant for something big. Here’s what to do in the meantime while we lie in wait, ever watchful. Non-subscribers, click here for access.
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