Weekly COT Report: Market Positioning Hints at Lower Yields

As of Tuesday 2^nd November 2021:

• Traders trimmed USD long exposure by -0.4 billion, according to calculations by IMM. Traders are estimated to be net-long the US dollar by 19.3 billion
• Large speculators increased net-short exposure to JPY and CHF futures for a 4^th and 3^rd week, respectively.
• Traders were their most bullish on NZD futures since March.
• Net-short exposure to US 10-year Treasury note fell to its most bearish level since March 2020.

Traders were their most bearish on the US 10-Year note since March 2020

With traders positioned at their most bearish level since the pandemic was taking hold on global markets (March 2020), the initial assumption would be for higher yields as they move inversely with bond prices. Yet the bearish positioning was seen with a strong reduction of gross longs, whilst newly initiated shorts only rose gradually. And as bond prices rallied on Friday (to send yields lower) we now suspect that longs are returning to the table, so we could expect lower yields going forward. And that could weigh on the US dollar.

Traders were their most bullish on NZD futures since March 2021

Net-long exposure to NZD futures rose to its highest level in 7-month last week. And that probably shouldn’t come as too much of a surprise, given traders are now expecting a 50 bs hike at RBNZ’s next meeting. However, as of yet there are no obvious signs of a sentiment extreme. Prices have yet to track higher with the net-long index and there’s some headroom for net-long and gross long exposure to move to previous highs.

As of Tuesday 2^nd November 2021:

• Large speculators increased net-long exposure to gold futures to their highest level since early September.
• Traders were their most bullish on platinum futures in 5-months.
• Net-log exposure to copper futures were trimmed for a second consecutive week.
• Traders trimmed net-long exposure to silver by -4.4k contracts.

Traders increased net-long exposure to gold

Traders marginally increased net-long exposure to gold futures by a mere 569 contracts. For comparison, we can easily see weekly changes of around 20-30k contracts, so this really is a minor adjustment. Price action suggests the potential for a bullish breakout, yet the net-long index has also risen to a historical resistance level – yet that is not at a historical extreme. As shorts have been closing out recently our bias is tilted towards a bullish breakout.

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