Sunday, November 21, 2010

Commitment of Trader Report - WE 11/9

Due to the Veteran's Day holiday the COT report was delayed from Friday to today. After crunching the data, one interesting data point relates to the 30 year treasury. The chart below shows the price of the 30 year treasury (right axis with price inverted) versus the net position (left axis, positive is net long) of commercial traders.

Throughout the year the commercial traders regularly decreased their net long position as the treasury continued to catch a bid. Then just a few weeks ago they reversed hard. Last week it was unclear whether the trend would continue or if they would revert back to increasing their net short position. Well they have not let up. They are at a pretty neutral position right now and it looks like weakness in the 30 year will continue.
The next chart is of the 30 year price and it is sitting right on the 200MA. It should find some support here for a brief bounce but looking at the COT data that's all it may be. Considering how municipal funds have been selling off lately as is the rest of the yield curve, fixed income investors are sending a very strong message about inflation expectations and QE2.    Today's rumor by Moody's to cut the US AAA rating should the Bush tax cuts be made permanent was the "stated reason" for the sell off but this move across all fixed income would imply there is far more to the sell off.


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