BofA says U.S. Treasury positioning remains heavily short

what happened

According to Seeking Alpha, Bank of America analysts said positioning in U.S. Treasuries remains heavily short across the yield curve. The bank estimates that a decline of roughly 10 basis points in 2-year yields would be needed to trigger meaningful short covering. Wednesday’s CPI release could become the next catalyst for positioning changes during the shortened U.S. bond-trading week.

Bank of America’s trend-following model shows CTAs, or commodity trading advisors, holding maximum short positions at every time horizon in 10- and 30-year Treasuries and German Bunds. Europe is seeing the first signs of a reversal: the most risk-averse CTAs have started to close Bund shorts and are now about 0.2% from their first cover trigger. China remains the only long position, BofA said.

Goldman Sachs suggested that long bonds may have found a floor this week after a sharp sell-off since late August. Deutsche Bank reported $166.4B of inflows into money market funds, the largest weekly increase since April 2020, with the U.S. accounting for $101.3B. Bond purchases also reached a four-month high of $33.8B, led by government debt in its fourth straight week of inflows.

why it matters

The combination of extreme short positioning and strong money market inflows leaves Treasuries sensitive to the CPI release and potential short covering. The Bund signal suggests that positioning adjustments have already begun in Europe.

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