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COT: Surging yields drive broad commodity weakness and long liquidation

Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to Tuesday, October 3. A week that saw worsening risk appetite across markets in response to a continued surge in bond yields and the dollar reaching a fresh high for the year. In commodities, the market responded to a broad sell off by cutting bullish bets across 24 major futures markets by 15% to a four month low.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities while in forex we use the broader measure called non-commercial.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.



This brief summary highlights futures positions and changes made by hedge funds across commodities and forex in the week to last Tuesday, October 3. A week saw a worsening risk appetite across markets in response to a continued surge in bond yields, with the US 10-year yield rising 26 bps to reached a fresh 16-year high, while the dollar reached fresh high for the year. In commodities, the market responded to a 1.8% broad sell off in the Bloomberg Commodity Index by cutting bullish bets across 24 major futures markets by 15% to a four month low.

Hedge funds turned broad sellers in the week to October 3 with the BCOM index dropping 1.8% amid rising yields and a stronger dollar. Selling being led by crude oil, gold, soybeans, sugar, cocoa and livestock being only partly offset by demand for copper, natgas and cotton.
Crude oil and fuel products: Hedge funds reacted to an emerging correction in crude oil by cutting their WTI and Brent long by 33k lots to 525k, thereby making a small reduction in the 170k lots that was bought during a three-week period last month. Since July 1, the WTI net long has surged 235k to 307k while the Brent long has risen by 58.5k to 218k. While WTI has been supported by tightening supplies at Cushing, funds have kept a low interest in Brent with growth concerns partly offsetting current tight supply worries.
Gold, silver and copper: The yield and dollar spike triggered accelerated fund selling of precious metals in the week to last Tuesday. Funds held a net gold short (-38.6k to -3k) for the first time since November while heavy selling of silver and platinum also resulted in net short positions. A development that left them exposed to today's short covering action on increased geopolitical tensions.
In grains and soybeans, another week of selling saw the combined net short across six soy and grain contracts reach a July 2020 high at 195k lots. Selling of soybeans (-25k to 5k) and both wheat contracts being only partly offset by short covering in corn (+9k to -159k)
Softs & Livestock: Selling also extended to the softs sector with heavy long liquidation seen in sugar and cocoa while cotton buying saw the net long reach a 15-month high. All three livestock contracts seeing selling led by the lean hogs contract
In forex, a tenth week of net dollar buying saw the speculative long against eight IMM futures more than doubling to a one-year high at $10.9 billion. Selling was particularly aggressive in EURUSD (-19.5k or $2.6bn equivalent), GBP (-22.3k or $1.7 bn) and CHF (-7.7k or $1 bn), and only partly offset by demand for AUD, NZD and MXN.
Breaking down the individual forex positions we find speculators hold net short IMM positions against the dollar with the EUR and MXN being the exeptions. Since hitting a cycle peak in May, the EUR net long has slumped by 58% to the current 79k lots (€9.9 bn). The biggest shorts are held in JPY (-$9.7bn) and AUD (-$5.2bn)

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