Commitment of Traders Report Points to Steeper Yield Curve
Commitment of Traders Report shows simultaneous commercial buying on the short end and selling of long dated Treasury futures.The weekends big news was focused on Spain and the regulated $125 billion bailout which delivered a brief respite to the embattled physical commodity markets. The sigh of relief is only momentary as physical sellers come back in to beat down the industrial futures markets.
We believe there are a couple of interesting developments headed our way as the market sectors begin to separate and realign their value propositions going forward.
1) The physical commodity markets are indeed softening.
Starting with the New York energy futures we can see that commercial traders that were originally buyers of the sell off in late April and early May have now switched to the sell side. Currently, the only energy market with net commercial trader buying over the last four weeks is crude oil. The natural gas, heating oil and unleaded gasoline markets are all showing negative commercial momentum and the net position in crude oil is anything but decisive.
2) The metal markets, particularly silver, platinum and copper are attracting significant commercial buying. Each of these markets has seen commercial trader net buying in each of the last four weeks. In fact, platinum has seen commercial buying for the past nine consecutive weeks. Therefore, we expect that the industrial sell off will be the first beneficiary of any bounce in the metals markets.
3) Finally, the interest rate complex is betting heavily on the flight to quality short term rates with significant inflation expected in the 30 year Treasury market.
Commercial traders were net long 680,000 Eurodollar futures contracts at the end of March and currently stand around 1.1 million contracts. This represents a significant bet on short term rates being flooded with cash as investors withdraw funds from risk assets.