Bonds

Archive for Bonds – Page 15

Large COT Speculators raise 10-Year Treasury Bond bearish bets as prices drop

Here are the latest charts and statistics for the Commitment of Traders (COT) reports data published by the Commodities Futures Trading Commission (CFTC).

The latest COT data is updated through Tuesday September 27th and shows a quick view of how large traders (for-profit speculators and commercial hedgers) were positioned in the futures markets.

Weekly Speculator Changes sees large drop for 10-Year Bond

The COT bond market speculator bets were slightly higher this week as five out of the eight bond markets we cover had higher positioning this week while three markets had lower contracts.

Leading the gains for the bond markets was the Fed Funds (78,319 contracts) and the Eurodollar (63,996 contracts) with the 5-Year Bond (51,838 contracts), the 2-Year Bond (22,538 contracts) and the Long US Bond (2,987 contracts) also showing positive weeks.

The bond markets leading the declines in speculator bets this week was the 10-Year Bond (-135,602 contracts) with the Ultra 10-Year (-30,952 contracts) and the Ultra US Bond (-15,994 contracts) also registering lower bets on the week.

Highlighting the COT Bonds data is the sharp drop in the 10-Year Bond large speculator contracts this week. Speculator bets fell sharply by over -135,000 contracts and halted a 3-week streak of improving speculator positions. The recent improvement in positioning brought the overall speculator standing to the least bearish level in eight weeks (dipping below -230,000 contracts last week). This week’s sentiment decline pushes the overall spec level back above the -350,000 contract threshold and the speculator position remains in a bearish extreme level compared to the past three years (see strength scores in sections below). The bond market prices have continued to sell off as the Federal Reserve (and global central banks) have been sharply and consistently raising their benchmark interest rates to fight the effects of inflation. The 10-Year futures price this week closed at the lowest level since 2008 while the 10-Year yield is currently at 3.83 percent (as bond prices fall, yields rise).

Data Snapshot of Bond Market Traders | Columns Legend

Sep-27-2022	OI	OI-Index	Spec-Net	Spec-Index	Com-Net	COM-Index	Smalls-Net	Smalls-Index
Eurodollar	8,302,517	0	-2,159,775	13	2,415,330	84	-255,555	48
FedFunds	1,756,969	61	102,483	52	-86,405	49	-16,078	19
2-Year	2,028,931	11	-319,877	18	425,570	98	-105,693	5
Long T-Bond	1,213,680	47	-96,552	53	68,268	35	28,284	75
10-Year	3,766,782	48	-365,192	17	409,938	71	-44,746	69
5-Year	3,999,390	51	-441,966	19	567,488	82	-125,522	46

Strength Scores

Strength Scores (a normalized measure of Speculator positions over a 3-Year range, from 0 to 100 where above 80 is extreme bullish and below 20 is extreme bearish) showed that the US Treasury Bond (53.2 percent) and the Fed Funds (52.3 percent) lead the bonds and are the only two markets above their 3-year midpoint (50 percent is the midpoint).

On the downside, the Ultra 10-Year Bond (13.3 percent) and the Eurodollar (13.4 percent) come in at the lowest strength levels currently followed by the 10-Year Bond (16.9 percent) and the 2-Year Bond (17.7 percent). All four of these markets are in extreme bearish strength levels at scores below 20 percent.

Strength Statistics:
Fed Funds (52.3 percent) vs Fed Funds previous week (42.6 percent)
2-Year Bond (17.7 percent) vs 2-Year Bond previous week (13.1 percent)
5-Year Bond (18.7 percent) vs 5-Year Bond previous week (10.8 percent)
10-Year Bond (16.9 percent) vs 10-Year Bond previous week (37.5 percent)
Ultra 10-Year Bond (13.3 percent) vs Ultra 10-Year Bond previous week (21.3 percent)
US Treasury Bond (53.2 percent) vs US Treasury Bond previous week (52.2 percent)
Ultra US Treasury Bond (29.4 percent) vs Ultra US Treasury Bond previous week (35.9 percent)
Eurodollar (13.4 percent) vs Eurodollar previous week (12.2 percent)

Strength Trends

Strength Score Trends (or move index, calculates the 6-week changes in strength scores) showed that the Eurodollar (13.1 percent) leads the past six weeks trends for bonds this week. The 5-Year Bond (3.8 percent) and the Fed Funds (1.7 percent) fill out the other positive movers in the latest trends data.

The 2-Year Bond (-21.4 percent) leads the downside trend scores currently while the next markets with lower trend scores were the US Treasury Bond (-16.0 percent), the Ultra 10-Year Bond (-7.2 percent) and the Ultra US Treasury Bond (-2.9 percent).

Strength Trend Statistics:
Fed Funds (1.7 percent) vs Fed Funds previous week (2.9 percent)
2-Year Bond (-21.4 percent) vs 2-Year Bond previous week (-34.4 percent)
5-Year Bond (3.8 percent) vs 5-Year Bond previous week (-21.6 percent)
10-Year Bond (-0.3 percent) vs 10-Year Bond previous week (8.6 percent)
Ultra 10-Year Bond (-7.2 percent) vs Ultra 10-Year Bond previous week (4.6 percent)
US Treasury Bond (-16.0 percent) vs US Treasury Bond previous week (-16.9 percent)
Ultra US Treasury Bond (-2.9 percent) vs Ultra US Treasury Bond previous week (-1.9 percent)
Eurodollar (13.1 percent) vs Eurodollar previous week (12.2 percent)

Individual Markets:

3-Month Eurodollars Futures:

The 3-Month Eurodollars large speculator standing this week came in at a net position of -2,159,775 contracts in the data reported through Tuesday. This was a weekly lift of 63,996 contracts from the previous week which had a total of -2,223,771 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 13.4 percent. The commercials are Bullish-Extreme with a score of 84.2 percent and the small traders (not shown in chart) are Bearish with a score of 48.2 percent.

3-Month Eurodollars Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	7.5	68.8	4.8
– Percent of Open Interest Shorts:	33.5	39.7	7.9
– Net Position:	-2,159,775	2,415,330	-255,555
– Gross Longs:	622,892	5,714,545	397,316
– Gross Shorts:	2,782,667	3,299,215	652,871
– Long to Short Ratio:	0.2 to 1	1.7 to 1	0.6 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	13.4	84.2	48.2
– Strength Index Reading (3 Year Range):	Bearish-Extreme	Bullish-Extreme	Bearish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	13.1	-14.1	18.3

30-Day Federal Funds Futures:

The 30-Day Federal Funds large speculator standing this week came in at a net position of 102,483 contracts in the data reported through Tuesday. This was a weekly gain of 78,319 contracts from the previous week which had a total of 24,164 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 52.3 percent. The commercials are Bearish with a score of 49.4 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 18.7 percent.

30-Day Federal Funds Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	15.1	71.5	1.7
– Percent of Open Interest Shorts:	9.3	76.5	2.6
– Net Position:	102,483	-86,405	-16,078
– Gross Longs:	265,540	1,257,032	29,182
– Gross Shorts:	163,057	1,343,437	45,260
– Long to Short Ratio:	1.6 to 1	0.9 to 1	0.6 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	52.3	49.4	18.7
– Strength Index Reading (3 Year Range):	Bullish	Bearish	Bearish-Extreme
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	1.7	0.8	-52.4

2-Year Treasury Note Futures:

The 2-Year Treasury Note large speculator standing this week came in at a net position of -319,877 contracts in the data reported through Tuesday. This was a weekly increase of 22,538 contracts from the previous week which had a total of -342,415 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 17.7 percent. The commercials are Bullish-Extreme with a score of 97.5 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 4.8 percent.

2-Year Treasury Note Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	7.6	82.4	7.7
– Percent of Open Interest Shorts:	23.4	61.4	12.9
– Net Position:	-319,877	425,570	-105,693
– Gross Longs:	154,887	1,671,856	156,986
– Gross Shorts:	474,764	1,246,286	262,679
– Long to Short Ratio:	0.3 to 1	1.3 to 1	0.6 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	17.7	97.5	4.8
– Strength Index Reading (3 Year Range):	Bearish-Extreme	Bullish-Extreme	Bearish-Extreme
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-21.4	34.5	-30.6

5-Year Treasury Note Futures:

The 5-Year Treasury Note large speculator standing this week came in at a net position of -441,966 contracts in the data reported through Tuesday. This was a weekly increase of 51,838 contracts from the previous week which had a total of -493,804 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 18.7 percent. The commercials are Bullish-Extreme with a score of 82.5 percent and the small traders (not shown in chart) are Bearish with a score of 46.5 percent.

5-Year Treasury Note Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	7.2	84.2	7.5
– Percent of Open Interest Shorts:	18.2	70.0	10.7
– Net Position:	-441,966	567,488	-125,522
– Gross Longs:	286,492	3,365,684	300,659
– Gross Shorts:	728,458	2,798,196	426,181
– Long to Short Ratio:	0.4 to 1	1.2 to 1	0.7 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	18.7	82.5	46.5
– Strength Index Reading (3 Year Range):	Bearish-Extreme	Bullish-Extreme	Bearish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	3.8	-6.6	7.8

10-Year Treasury Note Futures:

The 10-Year Treasury Note large speculator standing this week came in at a net position of -365,192 contracts in the data reported through Tuesday. This was a weekly decrease of -135,602 contracts from the previous week which had a total of -229,590 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 16.9 percent. The commercials are Bullish with a score of 70.6 percent and the small traders (not shown in chart) are Bullish with a score of 69.4 percent.

10-Year Treasury Note Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	8.4	79.6	9.8
– Percent of Open Interest Shorts:	18.1	68.7	11.0
– Net Position:	-365,192	409,938	-44,746
– Gross Longs:	316,478	2,998,569	367,874
– Gross Shorts:	681,670	2,588,631	412,620
– Long to Short Ratio:	0.5 to 1	1.2 to 1	0.9 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	16.9	70.6	69.4
– Strength Index Reading (3 Year Range):	Bearish-Extreme	Bullish	Bullish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-0.3	-7.2	14.9

Ultra 10-Year Notes Futures:

The Ultra 10-Year Notes large speculator standing this week came in at a net position of -59,760 contracts in the data reported through Tuesday. This was a weekly fall of -30,952 contracts from the previous week which had a total of -28,808 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 13.3 percent. The commercials are Bullish-Extreme with a score of 81.7 percent and the small traders (not shown in chart) are Bullish with a score of 59.8 percent.

Ultra 10-Year Notes Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	7.2	82.8	9.6
– Percent of Open Interest Shorts:	11.5	71.0	17.0
– Net Position:	-59,760	161,207	-101,447
– Gross Longs:	98,776	1,136,474	132,163
– Gross Shorts:	158,536	975,267	233,610
– Long to Short Ratio:	0.6 to 1	1.2 to 1	0.6 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	13.3	81.7	59.8
– Strength Index Reading (3 Year Range):	Bearish-Extreme	Bullish-Extreme	Bullish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-7.2	0.2	17.9

US Treasury Bonds Futures:

The US Treasury Bonds large speculator standing this week came in at a net position of -96,552 contracts in the data reported through Tuesday. This was a weekly boost of 2,987 contracts from the previous week which had a total of -99,539 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 53.2 percent. The commercials are Bearish with a score of 35.0 percent and the small traders (not shown in chart) are Bullish with a score of 75.0 percent.

US Treasury Bonds Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	5.9	78.3	14.2
– Percent of Open Interest Shorts:	13.8	72.7	11.9
– Net Position:	-96,552	68,268	28,284
– Gross Longs:	71,317	950,661	172,811
– Gross Shorts:	167,869	882,393	144,527
– Long to Short Ratio:	0.4 to 1	1.1 to 1	1.2 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	53.2	35.0	75.0
– Strength Index Reading (3 Year Range):	Bullish	Bearish	Bullish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-16.0	16.8	1.7

Ultra US Treasury Bonds Futures:

The Ultra US Treasury Bonds large speculator standing this week came in at a net position of -381,907 contracts in the data reported through Tuesday. This was a weekly decline of -15,994 contracts from the previous week which had a total of -365,913 net contracts.

This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 29.4 percent. The commercials are Bullish with a score of 79.3 percent and the small traders (not shown in chart) are Bullish with a score of 61.3 percent.

Ultra US Treasury Bonds Statistics	SPECULATORS	COMMERCIALS	SMALL TRADERS
– Percent of Open Interest Longs:	5.2	83.1	11.0
– Percent of Open Interest Shorts:	32.2	59.4	7.8
– Net Position:	-381,907	335,912	45,995
– Gross Longs:	73,402	1,176,845	156,277
– Gross Shorts:	455,309	840,933	110,282
– Long to Short Ratio:	0.2 to 1	1.4 to 1	1.4 to 1
NET POSITION TREND:
– Strength Index Score (3 Year Range Pct):	29.4	79.3	61.3
– Strength Index Reading (3 Year Range):	Bearish	Bullish	Bullish
NET POSITION MOVEMENT INDEX:
– 6-Week Change in Strength Index:	-2.9	-0.8	6.2

Article By InvestMacro – Receive our weekly COT Newsletter

*COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) were positioned in the futures markets.

The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators) as well as their open interest (contracts open in the market at time of reporting). See CFTC criteria here.

30 Sep

How bonds work and why everyone is talking about them right now: a finance expert explains

By David McMillan, University of Stirling

– The Bank of England is buying bonds again. Just as it was about to start selling the debt it had accumulated as part of its last effort to support the economy during the COVID-19 pandemic, the central bank has been forced to announce a new scheme to shore up investor confidence.

The bank’s £65 billion short-term spree aims to address the slump in bond prices caused by investors rushing to sell after the government’s recent mini-budget. This led to a surge in bond yields that hiked borrowing costs for the government and spread to pensions, housing and the general economy. So far, it has had a limited initial impact on the markets.

We asked an expert in finance to explain what’s going on in bond markets.

What is a bond and what is the difference between bond prices and yields?

A bond is essentially a tradeable IOU. It’s a loan that investors make to issuers such as companies or governments (UK government bonds are often called gilts). A bond has a price at which it can be sold and a yield, which is an annual amount the investor receives for holding the bond, a bit like interest on a savings account, and is expressed as a percentage of the current price.

When the price of a bond falls, it signals less demand for the bond because fewer investors want to own it. At the same time, the yield rises, which represents a higher cost of borrowing for companies or governments that issued the bond because this is what they have to pay to investors.

In the days since the government’s mini-budget, yields on 10-year Treasury bonds – which are issued by the UK government – increased from approximately 3.5% to 4.52% – the highest since the 2007-2008 global financial crisis. The expectation of continued increases prompted the recent intervention by the Bank of England.

UK government 10-year bond yields

Line chart showing UK 10-year bond or gilt yields, August - September 2022 — United Kingdom 10-year bond yield.
Investing.com / Tradingview

What causes bond yields to move?

To understand this, it is important to bear in mind that, while people often talk about the interest rate, there are actually a number of rates. This includes the rate at which the central bank lends to commercial banks (the base rate), the rate that banks lend to each other (the interbank rate), the rate that the government borrows at (Treasury yields) and the rate at which households and firms borrow (commercial loans and mortgages).

When the Bank of England changes the base rate, this cascades through all these rates. As such, the Bank of England carefully considers the state of the economy – that is, growth and inflation – when deciding on the base rate.

When an economy is growing, interest rates and bond yields tend to rise. The occurs for several reasons. Investors sell bonds to buy riskier assets with better returns. Firms and households also look to borrow more money in a growing economy, for example, to invest in new machinery or to move home. More demand for borrowing means lenders can charge higher interest on their loans.

Higher inflation often accompanies economic growth because of the increase in demand for goods and services. This tightens supply and causes prices to rise (including wages for labour). The Bank of England, which is mandated by the government to try to keep inflation as close to 2% as possible, will respond to higher inflation by raising base rates, which, as noted, feeds through to the different rates.

Investors will often anticipate the increase in base rates and look to act before it goes up by selling Treasury bonds and buying alternative, higher return, assets. This causes bond yields to rise further. As a result, the Treasury bond yield is often seen as a predictor of future Bank of England base rate changes.

So, if yields are rising, does this mean that investors are expecting future economic growth in the UK?

No, not at the moment. When the government raises money by issuing bonds, it does so over a range of time periods (called maturities), from one day to 30 years. When an economy is expected to grow, the yield on longer-term bonds will be higher than the yield on shorter-term bonds.

This relationship between yields across different maturities is referred to as the term structure or yield curve. An upward sloping yield curve implies a growing economy. At the moment, the UK yield curve is flat, or even downward-sloping across some maturities. My research shows that a falling yield curve is a good predictor of a coming recession.

Yield curve for UK government bonds

Line graph showing downward-sloping yield curve for UK gilts — UK gilts 40-year yield curve. *The curve on the day of the previous MPC meeting is provided as reference point.
Bloomberg Finance L.P., Tradeweb and Bank of England calculations

It’s important to remember that these different yields act as a benchmark for commercial lending rates of equivalent lengths. The approximate jump to 4.5% in 2-year and 5-year yields has been reflected in mortgage rates, which is why some lenders have pulled available mortgage deals recently while they reassess the lending rates charged to households.

But if the UK economy is not expected to perform well, why have bond yields been rising after the chancellor’s mini-budget announcement?

The rising bond yields we are seeing relate to an additional factor: the amount of government debt. The mini-budget introduced tax cuts and increased spending and investors know the government will need to increase borrowing to meet these commitments. Some estimates put potential government borrowing at £190 billion due to this plan.

An increase in the amount a homeowner borrows versus the value of their home (called the loan-to-value) causes the mortgage rate charged to the borrower to rise. Similarly, an increase in the amount of bonds that the government will be looking to sell (the amount it wants to borrow) will push down the price of existing bonds, increasing yields. More importantly, more debt without growth raises the risk level of the UK economy.

Anticipating this, investors triggered a large-scale bond sell-off after the government’s mini-budget announcement. This contributed to the fall in the value of the pound as investors selling UK Treasury bonds bought US bonds instead, essentially swapping pounds for dollars.

So will the Bank of England’s plan work?

The intervention will have a short-term positive impact, which started as soon as it was announced. But the bank is really only buying time. Any ultimate success depends on the government restoring investor confidence in its economic plans.

Unfortunately, rising yields and borrowing costs for the UK economy is the price we are now paying for the government’s recent fiscal announcement.

About the Author:

David McMillan, Professor in Finance, University of Stirling

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Bonds Opinions

25 Sep

Eurodollar and 10-Year Bond Speculator bets rebounded before Fed Hikes

By InvestMacro

Here are the latest charts and statistics for the Commitment of Traders (COT) reports data published by the Commodities Futures Trading Commission (CFTC).

The latest COT data is updated through Tuesday September 20th and shows a quick view of how large traders (for-profit speculators and commercial hedgers) were positioned in the futures markets.

Eurodollar and 10-Year Bond bets rebound in Weekly Speculator Changes

The COT bond market speculator bets were mixed this week as four out of the eight bond markets we cover had higher positioning this week while the other four markets had lower contracts.

Leading the gains for the bond markets was the Eurodollar (653,551 contracts) with the 10-Year Bond (123,299 contracts), the 5-Year Bond (27,655 contracts) and the 2-Year Bond (15,766 contracts) also showing positive weeks.

The bond markets leading the declines in speculator bets this week was the Fed Funds (-23,797 contracts) with the Ultra 10-Year (-22,022 contracts), the Ultra US Bond (-19,316 contracts) and the Long US Bond (-4,568 contracts) also registering lower bets on the week.

Highlighting the COT Bonds data this week was the rebound in both the Eurodollar and the 10-Year Bonds positioning. Both of these bond markets continue to have very bearish speculator positions and it has been that way since global central banks started to get more hawkish in raising their benchmark interest rates to fight inflation.

The Eurodollar turned from a bullish speculator position to bearish in May of 2021 while the 10-Year saw its speculative positioning flip bullish to bearish in October of 2021.

This week saw sharp gains for each of these markets with the Eurodollar jumping by a total of +653,551 net contracts and the 10-Year by +123,299 net contracts.

The bonds data was heavily influenced by the Federal Reserve’s interest rate decision coming out the next day that resulted in a 75 basis point hike. This likely prompted traders to take off positions that were deemed risky or to try and position for possible surprise outcomes of the Fed meeting.

The Eurodollar speculative change data for that Tuesday was the result of speculators sharply dropping their gross short positions by a total of -709,309 contracts. This is compared to a -55,758 contract decline in the gross long positions.

The 10-Year change, meanwhile, was the result of speculators raising their gross long positions by a total of +100,016 contracts in addition to reducing their gross short contracts by -23,283 to get the weekly net change of 123,299 contracts.

Data Snapshot of Bond Market Traders | Columns Legend

Sep-20-2022	OI	OI-Index	Spec-Net	Spec-Index	Com-Net	COM-Index	Smalls-Net	Smalls-Index
Eurodollar	8,320,365	0	-2,223,771	12	2,509,931	86	-286,160	41
FedFunds	1,719,198	58	24,164	43	-17,273	58	-6,891	42
2-Year	2,020,402	11	-342,415	13	438,181	100	-95,766	9
Long T-Bond	1,235,652	51	-99,539	52	78,958	39	20,581	69
10-Year	3,700,929	44	-229,590	38	342,348	63	-112,758	53
5-Year	3,974,321	50	-493,804	11	639,728	91	-145,924	41