[gusta_text vc_id=”text-12810704375d31bf8423f17d30461be46a7d303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” alignment=”center” sub_groups=”label_text” text=”QUANTIFYING MARKET POSITIONING SHIFTS IN BOND FUTURES OVER THE LAST 8 WEEKS” tg_text_tg_normal_tg_advanced_css=”padding-top:15px !important;padding-right:15px !important;padding-bottom:15px !important;padding-left:15px !important;background-color:rgb(245, 233, 233) !important;”]
[gusta_text vc_id=”text-15299706355be567519cbc2b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”In this publication we asses current market positioning, we examine how longs and shorts have evolved and what events changed investors’ mind over the last 2 months. In doing so we aim to identify the key events that changed market positioning so far, and are likely to affect it in the coming weeks.” tg_text_tg_normal_tg_text_style=”color:#7f8c8d !important;” tg_text_tg_normal_tg_advanced_css=”padding-top:15px !important;padding-right:15px !important;padding-bottom:15px !important;padding-left:15px !important;background-color:rgb(245, 233, 233) !important;”]

KEY FINDINGS

• Longs have been building positions steadily during the summer months

• Shorts are coming in abruptly and in large size, often ahead of auctions’ deadlines or supply announcements

• A constant build-up in longs driven by QE is facing government bonds supply headwinds

[gusta_text vc_id=”text-17327921215d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text”]

OVERALL A LARGE INCREASE IN THE LONG BASE

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ECB’S QE MAIN DRIVER OF THE BUILD-UP

Longs increased across all European Sovereign bond futures during the summer months. The increase was led by the short-end with the Schatz and the 2Y BTP seeing an increase of 46.5% and 33.4% respectively. Notably the 10Y OAT longs added 31.6% during the same period.

The market approached the summer with relatively light positions after a drastic reduction during the highly volatile first quarter. Over 30% of the position were cut across all European sovereign bond futures last March. The model flagged a return to core bonds in April and a new buying pattern favouring peripherals last May after the Macron-Merkel budget proposal agreement.

The supporting underlying flow coincides with the ECB’s decision to increase its net asset purchases by Euro 120bln in March and it is reflecting the constant presence of the central bank in the market. The new European fiscal policies packages contributed to the return of longs to peripherals as flagged by the model in May (see New Pattern Emerging In May for more details).

[gusta_text vc_id=”text-14933053225e42c3b413f3bd303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” alignment=”center” sub_groups=”label_text” text=”Longs have accumulated significant positions over the summer with shorts adding only recently and mostly in the long-end” tg_text_tg_normal_tg_text_style=”color:#0b8adb !important;”]
[gusta_text vc_id=”text-14933053225e42c3b413f3bd303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” alignment=”center” sub_groups=”label_text” text=”The Positioning Concentration Index provided warnings of an increased reversal risk as the short-end reached a +20 extreme score in a few occasions before returing to more neutral levels” tg_text_tg_normal_tg_text_style=”color:#0b8adb !important;”]

THE ROLE OF SUPPLY ANNOUNCEMENTS AND DEADLINES

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SHORTS ARE BUILDING-UP POSITIONS ABRUPTLY ON SINGLE SECURITIES, TAKING THE MARKET DOWN

Whilst the long positioning base is still present, shorts have recently accumulated significant sizes in the 10Y maturities. Qualitatively flows are different from previous months as they have been abrupt, large and concentrated in a determined security during sell-off days.

The qualitative distinction between longs and shorts flows reveal insights for timing trades. The model highlights…