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Short Treasuries Positioning Keeps Yields In Check

By Stephen InnesMarket OverviewApr 08, 2021 06:55AM ET
www.investing.com/analysis/short-treasuries-positioning-keeps-yields-in-check-200571922
Short Treasuries Positioning Keeps Yields In Check
By Stephen Innes   |  Apr 08, 2021 06:55AM ET
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I'm still trying to figure out what 1.7 % bond yield means for no other reason than bond yields are critical right now.

The Fed is totally unfazed by the rise in bond yields this year—to them, it all looks hunky-dory and in keeping with an improved economic outlook and the prospect of considerably more Treasury supply to come.

The minutes to March's FOMC indicated that some on the committee think financial conditions might be a little too easy and encourage undue risk-taking. Yet the Treasury market didn't blink.

Neither did Treasury yields show much puff in a 916k NFP gain in March -- the 10y yield added just 4bp. The same for a 23-year high in ISM a couple of days later.

The 10y yield stands at 1.66%, 12bp below its Mar. 30 peak.

CFTC data might help explain what's happening: the net speculative position in 10y Treasuries has turned from a long of 165,000 lots in early February to a net short of just over 100,000 by the middle of March.

The entire market dynamic changed in just four weeks, with investors switching from being long Treasuries to being short.

In fact, the latest trend is to buy some of the short back (especially at the front of the curve). It will likely be another month or so before the next leg of the yield trade and short end rates pressure resumes in ernest—jobs and stimulus being translated into spending and activity. Retail sales will take over from retail prices as the market driver.

Oil Markets

If you were lucky enough to get out on the spike to Brent +63.25, good call; otherwise, you might have to pocket some risk overnight as the market remains overly focused on DOE gasoline build.

But a creepy calm is falling on the oil market. Sure there remains an expectation that demand will accelerate through this year. But the supercycle is dead given a broad agreement that OPEC+ releasing barrels into this demand makes sense—suggesting oil prices in the $60s to low $70's on production normalisation vs current high spare production capacity is a logical outcome. Hence range trade beckons where low 60 is the buy and 70 is the sell. 

Short Treasuries Positioning Keeps Yields In Check
 

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Short Treasuries Positioning Keeps Yields In Check

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