Contrarian Crush & Why LT Rates Are Going Much Higher

This Bloomberg  piece was published before Facebook blew up but still you get the drift.  Betting against the crowd has been a disaster recently.   It always is until it isn’t.

In the past year, a contrarian portfolio that invests in the stocks that are least loved by fund managers and bets against their biggest holdings lost nearly 23 percent of its value. That’s the worst annual performance in more than five years for a strategy that until recently had produced consistent gains, according to a research note out this week from Bank of America Merrill Lynch. It has also been down four quarters in a row, a first. Two years ago, the same strategy would have been up nearly 17 percent, and more than 20 percent the year before that.  – Bloomberg,  July 5th

Only MoMo Market

Big Bets Against The Bond

By the way,  one of the most crowded trades in the market is to be short 10-year bond futures.    Wouldn’t bet against that crowd as many are.   The big short has been on for almost a year now and many events should, and would have in the past,  squeezed the bears hard but hasn’t, such as the stock market crash in early February.

There must be a spectre haunting the bond market.

We expect longer-term rates to move much higher sometime very soon (x/ some Black Swan flight-to-quality event), and the shorts will be paid handsomely.

Sometimes the crowd is right. and the many are smarter than the few.

The latest data from U.S. futures exchanges show that hedge funds and speculators last week accumulated a record short position in five-year, 10-year, and 30-year Treasuries futures, and also expanded their short position in two-year notes.

Commodity Futures Trading Commission figures show they now hold a record net short position of 715,965 contracts in five-year Treasury futures, 509,498 contracts in 10-year futures, and 212,674 contracts in 30-year futures.  – Reuters, July 30th

Hope to be out with a comprehensive piece with lots of data on our bond market view on Monday.

Here is a little teaser.


Feedback on the chart, please.

Stay tuned.

This entry was posted in Black Swan Watch, Bonds, Equities, Uncategorized and tagged , , , . Bookmark the permalink.

2 Responses to Contrarian Crush & Why LT Rates Are Going Much Higher

  1. Cephalonia25 says:

    The gist of the chart is that rising treasury supply will raise rates?

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