According to UBS data cited by Bloomberg on Aug. 12, commodity trading advisers (CTAs) — systematic funds that seek to profit from price trends across asset classes — tripled their underweight bond positions in July compared with two weeks earlier. The bearish wagers have since been kept steady, leaving the funds exposed to losses if the upcoming U.S. consumer and producer price indexes trigger a rally in Treasury prices. UBS strategist Nicolas Le Roux said that ahead of the inflation release, each 1 basis point move in the 10-year Treasury yield shifts CTA profit and loss by approximately $300 million. The exposure is the largest since UBS began tracking the data in 1990. The figures show the scale of the short-bond trade among trend-following funds as they wait for the inflation reports. With such a large position, even a modest move in yields could translate into hundreds of millions of dollars of P&L, making the consumer price data a decisive event for these strategies.
CTAs Hold Record Short in Global Bonds
Commodity trading advisers that aim to profit from price trends across asset classes tripled their underweight positions in global bonds in July compared with two weeks earlier, according to UBS data cited by Bloomberg. The report was published on Aug. 12. Since then, the positions have remained steady.
U.S. Inflation Data Decides P&L
If the upcoming U.S. consumer and producer price indexes push Treasury prices higher, the CTA trades will face losses. UBS strategist Nicolas Le Roux said that ahead of the inflation release, each 1 basis point move in the 10-year Treasury yield would shift CTA profit and loss by roughly $300 million. The exposure is the largest since UBS began compiling data in 1990.
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