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CIBC - Positioning Data Suggest Current Sell-Off Doesn’t Have Legs

CANADA
  • CIBC estimate the market is “short some C$2.5mm/dv01 in CN futures, roughly C$1.6mm/dv01 more than a month ago in mid March.”
  • The extent of short positioning is becoming less extreme as we “gradually move closer to the start of the Bank’s easing cycle. For reference, net shorts got as low as C$5.8mm/dv01 at the peak of the hiking cycle seen last fall.”
  • “Open Interest data suggests that most of the net shorts witnessed in the past weeks have been driven by a stopping out of long positions already initiated.” New shorts “remain relatively shy, estimated at ~10% of total volume.”
  • CIBC see greater loss appetite for participants going long. “Month-to-date, we estimate that aggregated new longs saw an average entry price of 3.55%, and an average exit price of 3.68%.” The ~13bps of staying power compares to ~5bps in Q1.
  • “On the flip side, new short positions have only seen a small gain before closing out” with an aggregated entry prices at 3.659% vs exit price at 3.63%. “Given that aggregated profits look quite narrow, we surmise that conviction to add to new shorts remains limited, and positions remain very tactical in nature (low staying power).”
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