Gavekal Capital: The Smart Money Is Getting Long Treasury Bonds Again

Tuesday, April 28, 2015

The Smart Money Is Getting Long Treasury Bonds Again

Long-dated US Treasury bonds have been treading water of late, leaving many rate watchers wondering in what direction the next big move is going to be. One variable in the next move is of course trader positioning. The two charts below show how the "smart money" is betting. Each chart shows the net number of options and futures contracts held by commercial traders (blue line), overlaid on the 10 and 30-year treasury bonds, respectively.

We observe that the commercials have been adding to their long positioning in the 10-year for most of the year following a large reduction in net long contracts in January. Meanwhile in the 30-year, the commercials have flip flopped from being net short in November to net long today. Positioning for neither contract is at an extreme yet, but the move has been large enough for us to not rule out the possibility that rates go lower before to long.