Top Advisors Corner

Another Treasury Bond Extreme

Tim Taschler

Tim Taschler


I wrote about the record 30-year Treasury market COT on 10/8/20 (here), and am writing this to report another new record short position by the large specs. The latest COT report came out Friday, 10/23/20, and we learned that large speculators (hedge funds) have hit another record net short position. The chart below shows the COT positioning for the past 52 weeks (red bars are commercials and blue bars are large specs):

courtesy of Software North, 10/24/20

Looking at this 20-year weekly chart of the US 30-year Treasury Bond (USB) you can see that, as October 23, 2020, the USB is sitting just below its 40-week moving average (equivalent to the 200-day moving average):

courtesy of StockCharts.com, 10/24/20

Nothing has changed for me since I wrote last time that "The 200-DMA tends to be a demarcation line for bull/bear markets. Should USB break lower, then odds are it will continue to trade lower for a while. But I would argue that, with the massive net short position in the hedge fund community, odds favor USB finding support around this level and moving higher. If it does so, then long-term interest rates will continue their march lower. Time will tell, but it's worth keeping an eye on since interest rates are a key driver across most other asset classes."

What is also worth noting is that, with the hedge fund community carrying a record short 30-year bond position, they are also hold a record long position in commodities:

courtesy of MacroCharts.com, 10/24/20

It is pretty obvious that there are massive, record bets by the large speculative community that the reflation trade is going to work and inflation will be rising. Will the large specs actually get this right and will it be one of the rare instances when the "smart money" commercials are wrong? We will find out soon enough. One thing I have often seen in my 34 years around the markets – when the positions get as extreme as they are right now, odds favor a reversion to the mean. In this case, I would expect to see bonds rally, interest rates fall and commodities trade lower.

Please send any questions or comments to me at ttaschler@sprottglobal.com.


Tim Taschler, CMT

Sprott USA


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