- – Last quarter we flagged that the long-bias was moving away from the US while building in European sovereign bonds
- – US Treasuries are now leading a rise in short positions, dragging along a build-up in shorts in Europe, Bunds shorts +33.7%
- – The belly of the curve shorts reached positioning exhaustion last week
- – Draghi drives bid for BTPs and EuroStoxx Banks;
- – BTPs shorts increase is only 1/3 of the shorts build-up in Bunds during the February sell-off
US TREASURIES DRIVING THE POSITIONING SHIFT IN EUROPE
Shorts increased by 33.7% in the Bund, 16% in the Bobl, 11.6% in the 10Y OAT, and 11.9% 10Y BTP
The model estimates substantial changes in the positioning bias across all European Sovereign bond futures. The sell-off in core markets has been mainly driven by an accumulation of short positions, which began being significant from the start of last month. In February shorts increased by 33.7% in the Bund, 16% in the Bobl, 11.6% in the 10Y OAT, and 11.9% 10Y BTP.
Last quarter we flagged that the long-bias was moving away from US Treasuries while building in European sovereign bonds. On the other hand, US Treasuries are now leading a rise in short positions, dragging along the shorts build-up in Europe.
We noted that the EUR/USD appreciation was coherent with last year’s investment preference for European bonds (see “The Constant Long-Bias Decline In Us Treasuries Positions“), while the current EUR/USD range trading reflects the now absent ‘long-bias migration’ in favour of Europe.
The accumulation of shorts in the Bund accelerated only after the release of better than expected Q4 data in the US. Treasuries position had already started a significant shift from the start of the year as noted on “The Reflation Trade Quantified” published last week.
DRAGHI’S MEANINGFUL IMPACT IN BTPs AND EUROPEAN BANKS POSITIONING
spEuroStoxx Banks longs added 13% with shorts covering 10% of their positions
The formation of the new government had a significant impact in BTPs positioning and drove a sharp decrease in the European Banks short-bias. The model captured an increase of 6.5%…