Fixed income, stock indices and VIX
In fixed income, leveraged funds were sellers and asset managers buyers across the whole yield curve. This was particularly the case in Ultra T-Bonds where leveraged funds increased the net-short by 9% to a fresh record of 481,000 lots. The DV01, which measures the dollar value of a one basis point move in yield, jumped by $14 million to $271.5m, a new record.
Expanding the focus from leverage traders, we can see how the total futures open interest across the US yield curve is broken down into the different categories defined by the CFTC.
This shows how for months now, continued selling by leveraged traders or speculators (as they are often referred to) has been absorbed by asset managers or real money investors. They can not both be right, and given their often short- versus long-term, focus the risk seems skewed to the upside – i.e. towards lower yields.
The CFTC reporting period covered the Federal Open Market Committee meeting and strong PPI reading before rallying on renewed stock market weakness combined with the deflationary impact of falling oil prices. During this time, US 10-year yields dropped to 3.14% from 3.23%. All three major stock indexes were sold while the VIX net-long reached a seven-month high after six weeks of buying.