Despite the fall back in rates since their late-December peak, the smart money commercial traders are still long almost 519K options and futures contracts on the 10Y treasury bond and 418K contracts on the 5Y treasury bond. In the past, extreme levels of smart money positioning – whether long or short – has resulted in important peaks/troughs in rates. Therefore, a reversion back to neutral positioning would likely coincide with a further fall back in rates.
Whether or not these factors lead to significantly lower bond yields remains to be seen, but a key yield level is being tested in the 10-Year again, which could be the final push the bond market needs to put together another big rally.
The Vanguard Total Bond Market ETF (NYSE:BND) was unchanged in premarket trading Tuesday. Year-to-date, BND has gained 0.67%, versus a 6.08% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Gavekal Capital.