JPM Flag Short-End Positioning As The Key Driver Of Retrace From Highs In Yields

J.P.Morgan think Wednesday’s post-FOMC reaction in Tsys was “influenced by position technicals: while our latest Treasury Client Survey and our core bond fund index both show positioning has shifted more neutral in recent months, both continue to show a modest duration underweight. Moreover, the CFTC’s weekly Commitment of Traders shows speculative positioning in rates is near its most bearish levels of the cycle. A more detailed look at this metric indicates most of this positioning is at the front end: speculative positioning in Eurodollars, SOFR, and TU futures is at its shortest levels of the current cycle, matching what was observed in late-2017. Thus, we think short covering at the front end contributed to this rally today off the local highs in yields.”