Treasury Specs Are So Short, It Is Now A 4 Sigma Event

With doubts that the “Trumpflation” trade is over creeping ever higher, leading to a precarious decline in the USD in recent days, and prompting comparisons to the Dollar’s move at the start of 2016 when the greenback’s ascent dramatically reversed…

… resulting in a pick up in the long end, which has outperformed the Dow YTD in 2017…

… it was surprising to see that traders, seemingly unfazed by recent price action, took their record shorts across the Treasury curve, and made them even recorder.

According to the latest breakdown of short positions by Deutsche Bank, speculators increased their net shorts by $7.7 billion in 10Y cash equivalents to $99.4 billion, a third successive week of record low positions.

The Breakdown by 5Y net specs…

… 10Y net specs…

… and 30Y net specs…

… shows just how aggressive the short pile up has been.

According to DB’s calculations, the net short position is now a four sigma event, having grown to nearly four standard deviations away from mean, even after adjusting for open interest.

TY and FV net spec shorts reached new record highs of 395K (+50K) contracts and 437K (+27K) contracts, respectively. An exception was in TU futures where specs pared 35K contracts from their net shorts. Spec net short in Eurodollars also increased to a new record high of 2,442K (+326K) contracts.

And while other asset classes were relatively unchanged, with the recent surge in net specs in oil, nat gas and copper all moderating slightly in recent weeks…

… a separate observation by Bank of America suggest that the recent hedge fund infatuation with equities may be over, after hedge funds net sold the most S&P 500 contracts in a week since Jan. 2016., while the recent surge in Russell bullish bets also appears to have found a ceiling for now, and while buy-side net position in Russell 2000 was near record high (a “contrarian bearish” signal), a near term a move below 1347.2 would trigger a tactical bearish signal for the 1308.85 to 1300 area, according to Bank of America.

Of all of the above, keep an eye on the record(er) TSY shorts: a few more indication that the Trump reflation rally is over, or worse, inverting especially if the recent spike in positive macro news tapers off, we may witness one of the most violent short squeezes across the rates complex in history.