Tuesday, 19 May, 2020
First notice in USTs Friday 29th so a few banks have put out their views on the
First notice in USTs Friday 29th so a few banks have put out their views on the rolls
Barclays
TU: neutral. Limited cheapening pressure on the roll given asset managers have steadily reduced their net long position over past year, which has limited richening of the back CTD security
FV: bearish. Room for roll to cheapen further; it’s little changed in current cycle, has cheapened 1 tick at trough heading into the first delivery date on average
TY: bearish. Back CTD is rich but hasn’t provided a good signal on the direction of the roll. Asset manager net longs little changed, with positions as price-sensitive as in last roll cycle. Roll has richened 0.4 ticks in current cycle vs average cheapening of 1.2 ticks
UXY: neutral. Asset managers have trimmed net longs, which are more price-sensitive. Price-sensitive leveraged investors unlikely to exert further richening pressure on the roll
US: neutral. Asset managers’ net long has increased, helped by introduction of the new 20-year Treasury bond, yet roll has cheapened . Neutral however given cheapening performance of the roll thus far
WN: bearish. Asset managers’ price-insensitive net long positions should exert cheapening pressure on the roll
JPM
TU: mildly bullish based on rising T-bill supply and expected steepening of 2s5s curve
FV: bullish. Pullback in asset manager positioning implies 0.5 ticks of richening in the spread; Rising T-bill supply and expected 2s5s curve steepening add to bullish bias
TY: bullish. Expected steepening of 5s10s Treasury curve (partly reflecting new 20-year bond issue) implies small (around 0.5 ticks) bullish bias to the spread. Asset managers remain outright net long despite reduced position. Rising T-bill supply adds to bullish bias
UXY: bearish. Decline of asset manager net long positioning imparts 1.5 ticks of bearish bias; wild-card option value adds 1.2 ticks
US: bullish. Treasury 20-year issuance may cheapen forward 20-year yields, adds to bullish bias, as does rising T-bill supply. Positioning adds ~0.5 tick of bearish bias
WN: bearish. Significant wild-card optionality and potential for even higher realized post-close vol at the long-end of the Treasury curve could account for as much as 10-15 ticks on the roll. Also, WNM0 contract remains significantly rich, with implied repo trading below term repo to delivery
DB
TU bearish: Historically CTD cheapens on asset swap spreads vs. incoming CTD into delivery date. New CTD Mar22 has scope to underperform, a risk for TUM0 cheapening and bearish for spread. Asset manager positions almost halved since March
FV mildly bearish: CTD valuation less likely consideration while positioning is bearish but less so compared to last roll cycle
TY mildly bearish: No strong bias from a CTD relative value standpoint. Asset managers share of open interest lowest since 2018 at 16%, mildly bearish for the spread
UXY bearish: The 1.75% Nov29s appear rich and risk underperforming in the near-term, which is bearish for the calendar spread. Positioning unlikely to be a meaningful factor for the roll
US bearish: Asset managers significantly increased net long positions in the bond futures to 33% of open interest, highest in recent years and a bearish factor for roll
WN mildly bearish: Asset managers reduced net longs by ~20% since last roll cycle, but remain high enough for a meaningful bearish factor
CITI
We are neutral the TU roll, bearish the FV roll, slightly bullish the TY roll, neutral the UXY roll, slightly bearish the US roll, and bullish the WN roll
MS
TU: mildly bearish. Roll is influenced primarily by positioning and recent roll cycles. Asset managers maintained longs in the contract, mildly bearish for the roll. Prior three roll cycles suggest cheapening into First Notice Day is likely
FV: mildly bearish. Asset managers and other reportables have maintained long positions over the past four cycles. Those cycles also have seen modest cheapening throughout the cycle followed by richening into First Notice Day
TY: neutral. Asset manager net long positioning has dropped since November 2019 cycle, while CTDs won’t have significant impact on the rolls. Virtually no probability new 7-year bond to be auctioned later this month will become the back contract’s CTD
UXY: neutral. Asset managers’ net long positions have decreased but remain bearish for the roll. CTDs are cheap vs a month ago, adding a mild bullish stance that’s offset by mildly bearish positioning stance
US: bearish. Asset managers and levered funds have increased net long and short positions respectively, implying a bearish bias. Back contract is currently 5 7/8 ticks cheap, while the front contract is trading at fair value so roll is trading rich
WN: mildly bullish. Current cheapness of the roll is bullish, although net long positioning of asset managers and other reportables partially offsets bullish bias
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