Inverted Risk-On/Risk-Off Update

This week’s CFTC COT report shows the large specs have maintained their net short $ES_F position with the market near its highs while as well as their net long $FV_F with yields near record lows.

Chart: Bloomberg

according to ISI fund flow data, over the past 12 months (ending 2/29) investors have deposited $402b into fixed income funds and withdrawn $177b from equity funds.  since the beginning of the year investors have added $64b to fixed income v only a measly $611 to equity funds.

Friday despite positive employment data and an attempt to break support the $US_F contract held the 140-00 area but remains poised to break out of the 4 month 4 point range.  We would be taking cues from the bond contract as it could be a major move and per COT data the book is fairly balanced so there is plenty of pent-up energy to take it either way.  With supply in 3s, 10s and 30s and inflation data coming this week including a FOMC meeting on Tuesday, it will be another important test.

The coming week also sees the quarterly expiration and with both equity and bond markets at critical junctures there could be some unexpected volatility and thus serious pain for this inverted risk trade especially if $SPX can break above 1375…   and if the market likes to cause the most pain to the most people..   this is it


About exantefactor

capital market veteran of over 15 years covering multiple asset classes. Focused on analyzying markets ex ante (before the event).
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