cleaner positions into FOMC
Given markets volatility AND that I’m not EVEN an innocent bystander these days, I’m gonna leave THIS POSITIONS UPDATE here, ahead of tomorrows FOMC. I will say that looked to ME to be a fairly robust bid for 5yr USTs and dunno ‘bout you BUT I’m happy to take 5min break (tomorrow) from supply and THEN figure out what — if anything — to do with 7yy.
>>> Areas of focus?
Cleaner positioning setup across fast, medium and legacy positioning horizon with risk/ return more balanced…The big take away is that positioning is much cleaner going into FOMC
So where are the risk?
30y: Extended short maintained in 30y ($17m/-3.4/90th percentile) and shorts 6bps onside below 190-28 and profits squeezed above 189-10.
10/30 Curve: Steepners building in 10/30s and moderately extended by mild losses below 37bps.
2/10s Curve: Extended flatteners / extended profits (onside below 100bps) still very much in legacy => flattening momentum for now
Stirt: Extended shorts in legacy Eurodollar whites with front end positions more than 20bps in profit with EDZ2 profits concentrated below 98.95 but potential for squeeze above 98.80
Short/profits building in equities with the bias to upside build below 4,150 (where short profit become extreme)
>>> UST - Moving to Neutral: $58m shorts (6bps profits) vs $49m longs (14bps loss)
In USTs the market was better to add to new long risk (concentrated in 5s and the strip) with flows balanced between short covering / new longs over the last few sessions. In contrast in our own flows, the largest activity has been to fade recent curve flattening.
So where are we ahead of FOMC? In USTs, fast 1mth and long term position metrics how all been rapidly cut (and are now only mild short). However, there is no change in the extended shorts held at the front end of the Eurodollar strip as market prices in 4 hikes. Meanwhile in curve extended flatteners maintained in 2/10s which are deeply onside below 100bps, and 10/30s steepeners build (to fade recent flattening) but mildly in loss below 37bps.
Focus remains on the short side (since there is still where the risk is concentrated) … in FV/TY with short profits further squeezed above 119-24/128-20 but in CTA large moves required with shorts starting to be trimmed at 120-18/129-24.
… So where is the largest exposure ahead of FOMC? Extended legacy shorts still very much in play in the Eurodollar strip and these positions remains deeply in profit by more than 20bps - in EDZ2 profits only start to be squeezed at 98.80.
Meanwhile, there is little change in the consensus flatteners held in 2/10s (deeply in profit below 100bps => not time to fade yet) but a build into 10/30s steepeners into recent flatteners (which matches the flows we see in cash/swaps) = > oversold but no profits below 37bps.
The more things changed, the more they seem — for now — to have stayed the same. One thing for sure is that 127s no longer exerting that gravitational pull. Perhaps we’ll revisit after FOMC … For NOW, though, how about that 5yr auction — from The Street,
5-year auction stops through 1.4 bp - another strong result
* Today's 5-year auction was strong with a stop through of 1.4 bp and non-dealer bidding of 85.2% vs. an average of 77.6%.
* 5-year auction stopped at 1.533% vs. 6 auction average of 1.045%.
* Bid/Cover was 2.50x compared to an average of 2.40x.
* Dealers took 14.8% vs. a 22.4% average.
* Directs claimed 16.5% vs. a 17.2% norm.
* Indirects were awarded 68.7% vs. an average of 60.4%…
Here are 7yy which look to ME to be forming some sort of TOP up nearer 1.85% and momentum moved from oversold to now about in the middle of no-mans land,