There’s lot of information in these very detailed reports from bulge bracket firm tracking minutia attempting to uncover where fresh risks lie and the title is catchy.
Today’s no exception so here’s an excerption and a visual or two
Extended Technicals Vs Light Positioning
>>> UST - Moving short: $45m shorts (19bps profits) vs $38m longs (22bps loss)
Two dynamics at work post FOMC minute - short momentum but stretched technicals (given the size and speed of the move) vs mild positioning in cash/swap/futures (more capacity to cheapen?)
We see the initial sell-off driven mainly by long liquidation with over $17m cut from the short side over the last week ($5m yesterday) - major activity has been in the belly with $3m cut from FV/ $6m cut from TY over last few sessions. This has driven positioning to flip into mild shorts but not extended and with little accrued PnL (short profits offset by long losses).
Into contrast CTA have rapidly switch into max shorts across the curve (by closing out long end flatteners) with current levels far away from trigger points (10bps of richening required at the long end).
However in our franchise flow we see that positioning is light - largest activity is by Banks who have been buying into cheapening (on profits taking?). In contrast a more consensus short held in real rates but again we see profit taking as real yields cheapen.
Hence we see short momentum is intact with focus on the short side where profits are concentrated - in TYs short 100% onside below 129-17 with resistance at 128-31 (where short side profits squeezed)
… This covering flow has trimmed the net long positions that build (on the back on EOM bid / Omicron). Positioning is now only mildly short and PnL flat (long loss offset by short profits)
…However, in cash/swap the setup looks more benign with a mild bias towards 10s steepeners, long swap spreads concentrated in 5s and Banks (net short but buying into cheapening on profit taking).
Lots more (HERE) but technicals and light positions are about to meet the mother of all data points — NFP — which puts the FUN in FUNduhMENTALS.