Following futures positions of non-commercials are as of October 2, 2018.
10-year note: Currently net short 740.2k, down 16.1k.
Kudos to non-commercials for having doggedly remained bearish on 10-year Treasury notes. They reaped a bumper crop this week. In September last year, the 10-year rate (3.23 percent) began to rise from 2.03 percent. These traders have since been amply rewarded. Yields have remained north of three percent the past three weeks. This week, the 10-year rate broke past the mid-May high of 3.12 percent, rallying 17 basis points.
The last time the 10-year unsuccessfully tried to take out three-plus percent was five years ago. This was then followed by an all-time low of 1.34 percent in July 2016. Then in April this year, it again went after that resistance – unsuccessfully, but at the same time it kept hammering on it in the following weeks and months. Until it gave way this week.
In all probability, stops got taken out this week, which added fuel to the fire. How high can these yields go? Here is a hint. There are plenty of fundamental reasons to argue for higher yields – ranging from rising US budget deficit to the Fed reducing its Treasury holdings to lesser foreign demand. But at the same time, post-financial crisis, leverage has only grown. The US economy’s sensitivity to interest rates has only grown. Potential higher interest payments thus should act as natural brakes on long yields, including the 10-year.It is just that bids are likely to show up at a higher level than in recent past.
30-year bond: Currently net short 119.8k, up 16.8k.
Major economic releases next week are as follows.
The NFIB small business optimism index for September comes out Tuesday. In August, it rose nine-tenths of a point month-over-month to 108.8, a new record.
September’s producer prices are scheduled for Wednesday. PPI slipped 0.1 percent m/m in August. In the 12 months to August, it rose 2.8 percent. In the same time period, core PPI rose 0.1 percent and 2.9 percent, respectively.
Thursday brings CPI for September. August consumer prices increased 0.2 percent m/m and 2.7 percent in the 12 months through August. Core CPI rose 0.1 percent m/m in August and 2.2 percent in the 12 months ended August.
