Extended shorts in fast 1mth positioning with profit collapse… but less extended from extremes => bias for richen but more balanced=> Short profits at risk in FV on moves above 119-22
HF rapidly building into short 30y / steepeners… and highly extended short in 30y futures vs ALM supportive for long end bid=> In WN profits concentrated at 191-00 and vulnerable to a further squeeze on moves above 189-16.
Mild shorts into cheapening (but only limited profits) => buy the dip… but risk/return only really improves once regime switched to short/profit => In SPX short profits (at 3.5% below 4,625) vs long losses (at 5% below 4,700) and risk return improving to buy the dip
Risk parity having a rough ride => potential for deleveraging BUT we need higher vol.
>>> UST - Short losses: $73m shorts (6bps profits) vs $43m longs (18bps loss)
Reasonable addition to the long side into the richening driven by a combination of new long risk and short covering ($12m). Extended shorts in fast 1m positioning (based on flows over the last month) still very much in play (at $50m) but have been trimmed from extremes. However, richening havs driven 70% of recent shorts 70% offside with losses growing.
In contrast, longer term positioning is less extended short (at $30m) and front-end short positioning still deeply in profit by more than 10bps. Losses? Not large with short profits offset by long losses. Meanwhile in cash/swaps we have seen two way flows with little direction bias but a large build into curve steepeners (to fade recent flattening) with extreme shorts held in 30y WNs.
Are we in the capitulation zone? Not yet - CTA remains max short with an additional 15bps of richening required in 10y before shorts start to be trimmed. Meanwhile in risk parity clearly has had a torrid time buy it is not overly leveraged and requires higher volatility to drive unwinds (not there yet).
Into today richening we see risk/return now balanced with larger moves required to drive further capitulation - focus on the short side... in FV/TY with short profits further squeezed above 119-24/128-20 and CTA start to trimming shorts at 120-18/129-24.
…Positioning setup is highly extended short in fast (1m), and moderately extended short in medium (3n) / legacy (6m) positioning windows...
The biggest impact into cheapening has been the collapse in profit of short.. and recent short are now 70% underwater. However longer term positioning is more resilient with long losses offset by short profits.
This all once again followed by some detective work in as far as WHO may be in driver seat,
… Are Asian accounts really buying... looking at timezone returns we certainly see recent support during Asian hours for 10y USTs.
