[gusta_text vc_id=”text-12810704375d31bf8423f17d30461be46a7d303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” alignment=”center” sub_groups=”label_text” text=”QUANTIFYING MARKET POSITIONING SHIFTS IN EUROPEAN BOND FUTURES OVER THE LAST 8 WEEKS“]
[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;”]

KEY FINDINGS

•  THE EU BUDGET NEGOTIATIONS ARE A DECISIVE ELEMENT IN INVESTORS’ ALLOCATION TO PERIPHERAL VS CORE BONDS

•  A CONSTANT UNDERLYING LONG BUILD-UP ACROSS ALL BONDS TRANSPIRES AS THE ECB STEPS UP ITS QE PROGRAM

•  A NEW PATTERN IS EMERGING IN MAY AS PERIPHERAL BONDS’ LONGS RETURN

•  BTPS AUCTIONS HAVE BEEN USED BY INVESTORS TO REBUILD LONG POSITIONS

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

POSITIONS WERE REDUCED DRASTICALLY IN MARCH

space

AS VOLATILITY ROSE, POSITIONS WERE CUT ACROSS-THE-BOARD

  • Investors reacted by reducing positions as price volatility jumped, a pattern similar to the 2008 crisis.
  • Over 30% of the outstanding positions were cut in the Bund, 10Y OAT and BTPs, whilst Schatz’ positions were halved.
  • A drastic reduction from the longs led the move, driving the selloff between March 9 to the 20th (see table and charts).
[gusta_text vc_id=”text-14933053225e42c3b413f3bd303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” alignment=”center” sub_groups=”label_text” text=”Positions were reduced across the board with 10Y BTP short positioning momentum leading“]
[gusta_text vc_id=”text-14933053225e42c3b413f3bd303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” alignment=”center” sub_groups=”label_text” text=”Positions quickly reverse into a short bias, reaching overextended short“]
  • The move caused a major shift in positioning taking the Bund, 10Y Oat, and 10Y BTP from a long bias to an overextended short (March 3 to March 20).
  • The change in Bund is particularly sharp as it moves from an overextended long position to an overextended short position (left chart below).
[gusta_text vc_id=”text-14933053225e42c3b413f3bd303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” sub_groups=”label_text” text=”The Bund positions were at an overextdended long (+20) on March 3rd just before the start of the sell-off and a sharp positioning reversal. The Bund and 10Y OAT positions reached an overextended short (-20) on March 21 and 20 respectively before rebounding again (charts below).“]

LONGS RETURN TO CORE MARKETS FROM APRIL

space

PERSISTENT BUYING IN BUND COINCIDES WITH TWO CATALYSTS

[gusta_text vc_id=”text-14933053225e42c3b413f3bd303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” sub_groups=”label_text” text=”1. DISAPPOINTING EU RESCUE PACKAGE SUPPORTS BUYING IN GERMAN BONDS (APRIL 14)“]
  • •  We measured the change in positions since the April 14 rescue package announced by the EU Finance Ministers. It is from this point on that a persistent return of long positions started for the German bond futures as the news disappointed investors.
  • •  From April 14 to mid-May, the Schatz has accumulated a 51.6% increase in long positions whilst the Bund and the Bobl added 14.49% and 10.12% longs respectively.
[gusta_text vc_id=”text-14933053225e42c3b413f3bd303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” sub_groups=”label_text” text=”2 – LONGS IN CORE BONDS AND THE SHORT-END INCREASE AFTER THE ECB MEETING (APRIL 30)“]
  • •  As the April ECB meeting concluded, a significant amount of longs increased favoring core markets and the short-end. A large part of the move happened on the same day with longs in 10Y BTP going down by -6% as Bund longs increased by +3%. Schatz long increased by +10%.
[gusta_text vc_id=”text-14933053225e42c3b413f3bd303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” alignment=”center” sub_groups=”label_text” text=” Change in Positions April 29 to May 7 “]
[gusta_text vc_id=”text-14933053225e42c3b413f3bd303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” alignment=”center” sub_groups=”label_text” text=”BTPs stay behind as longs increase in core markets.“]

NEW PATTERN EMERGING IN MAY

space

WHILST THE INITIAL EU BUDGET PROPOSAL COINCIDED WITH A SHIFT OUT OF PERIPHERALS INTO CORE MARKETS, THE NEWLY RELAUNCHED EU PACKAGE IS NOW THE CATALYST FOR A RETURN TO BTPS AS LONGS ARE REBUILDING POSITIONS CONSISTENTLY…