• Differently from October, the market is still long peripherals ahead of the upcoming ECB meeting
• The long-bias in bonds is shifting from the US to Europe
• The Positioning Trading Strategies are running shorts in UST vs longs in European sovereign bond futures as positioning momentum is significant and in the opposite direction
The ECB is successfully driving a major shift in European bond positioning. The true extent of the ECB influence on the market is apparent when looking at the magnitude of the accumulation of long positions across all European sovereign bond futures.
This is particularly relevant now that we are only days ahead of the ECB meeting. Longs increased on all futures with peripherals leading the position accumulation move. The October meeting was a major catalyst for BTPs outperformance.
The last two months move comes on top of the already large accumulation over the summer months as reported in the September issue “QE Buying Vs Supply, The Opposing Forces Determining Positioning”, where the ECB’S QE was noted as the main driver of the build-up.
Here below are the Positioning Index changes from September to date. The most impressive changes are in peripherals. In core, longs lightened positions just after the ECB October meeting in favour of BTPs.
LONGS FLEEING US TREASURIES WHILE BUILDING IN EUROPEAN BONDS
STRATEGIES SHORT IN US WHILE LONG EUROPEAN BOND FUTURES
The flow is in stark contrast with what we are reporting in the US, where US Treasuries longs have been cutting positions, fleeing the market on any major fiscal policy announcement. The US Treasuries longs have been practically shifting away, while incrementing positions in European government bonds.
We do not have the elements to affirm that there is a “direct” shift from US long positions to Europe, but we can surely say that the long-bias is moving away from US Treasuries while building in European sovereign bonds. The EUR/USD appreciation over the last 2 months is certainly coherent with this investment preference.
Our trading strategies, purely based on positioning momentum, are currently running a short in the US T-Bond bond while long signals are getting triggered for European bond futures. The two signals are independent of each other and a result of the positioning shift intrinsic to their own market.
Significant short positioning momentum is driving US Treasuries, while long momentum signals keep surfacing up for the European strategy triggering long signals.
Significant short positioning momentum triggers a short in the US T-Bond @ 175 on Nov 27
Several long positions triggered in OAT and BTPs with positioning significantly supportive (green triangles in chart)
CONTRARY TO THE LAST ECB MEETING, PERIPHERALS POSITIONS HAVE ONLY SLIGHTLY LIGHTENED
2Y BTP WAS SHORTENED AGGRESSIVELY IN THE DAYS PRIOR THE OCTOBER ECB MEETING