Could it be that the epic run in government bond prices has finally come to an end?
For example this was the action in the yields of US, German and UK government ten-year debt last week:
But as Marc Ostwald of Monument Securities notes in an early Monday email, speculative positioning in US Treasury futures last week — as well as fundamental data — could be behind much of the turnaround.
The latest CFTC data — which breaks out speculator positions from industry swap business — for example showed:
- US Treasury Futures –
# US 10-yr future Spec position swings to 63K Net long, Open Interest -104K
# US 30-yr future Spec Net Short rises 8.5K to 9.3K, Open Interest +37K
# US 5-yr future Spec Net Long falls 8K to 43K, Open Interest -147K
# US 2-yr future Spec position swings to 10K Net short, Open Interest -112K
As Ostwald comments (our emphasis):
The obvious features of this week’s reports are a) that last week’s sell-off IN US Treasuries was primarily predicated by the fact that specs found themselves heavily net long of 10yr and to a lesser extent 5 yr, and the shorts in 2s and the long Bond future were not of the variety that a short squeeze could be engineered.
Which adds further to the case that squeezes via convexity hedging (and such the like) may be driving bond prices, rather than pure economic fundamentals.
Related links:
So Much For The Frenzy Over Treasurys - WSJ Market Beat
Flattening yield curve, flat-lining banks – FT Alphaville
David Rosenberg on why the yield curve will flatten – this time! - FT Alphaville