- Hedge funds stopped monopolizing their endless selling of 10-year Treasury futures to better test consumer prices, and the increase in annual inflation on its lowest since the past three decades suggests the hiatus could be short.
I wonder how much I believe in the interest rate is. I think the October inflation report released on Nov. 10 was always a biggie, potentially pivotal, so the Fed will always be making an important decision about how much will the time afford it takes to raise interest rates and to the rate of the time it takes to raise the rates.
It did not disappoint, and inflation's headline rate jumped to 6.2%, the highest since 1990, and fuelled the ongoing debate and debate over whether the Fed is behind the curve.
The report from NBC to Nov. 9 shows that funds trimmed their net short position in 10-year Treasury's futures by 1,337 contracts and 2,67,332 contracts ahead of the release.
This entaild a huge build-up of highly reliable positions to which it honed off a higher 10-year yield. October's unwind of 296,052 contracts was the biggest monthly drop to short positions since 2005.
Today, after all, the unwind of 448,539 contracts over October and so far in November, is the biggest selloff ever the week before it was its strongest since March 2018. On an annual basis, the unwind of 448,539 contract contractes on October and so far in October marks the most intense selloff.
DONE 'TRANSITORY' UNDER SCRUTINY.
The economists at Barclays note that the uncertainty about near-term inflation remains unusually high as supply adjustments progress. Inflation expectations resumed to new heights in the future, followed the latest figures as well.
They wrote in a note on Monday that the October CPI readings too much about inflationary pressures. "We think that October's CPI readings overstate underlying inflationary pressures, but last month's report can swell into the current current volatility and uncertainty", they wrote.
The first of two rate hikes put in for next year from July, but gave a second chance of one to a cent apiece on the year-end.
The renewed move up the breakeven inflation rates - the difference between yields on nominal and Treasury Inflation Protected Securities - may make it difficult for policymakers to ignore.
In a year from one to 30 years from one year in the decade, all benchmark breakeven rates rose to their highest level in years - in some cases in nearly two decades - following the October inflation data.
As inflation is 'transitory', the rise of former government and central bank officials and long-time frighteners, a number of leading managers of the country, particularly Larry Summers, Bill Dudley and Willem Buiter, have since urged the Fed to rethink its position that it can afford to sit it out a little longer.
Since the most recent data shows they put the net short market to 407,485 on 5-year Treasury Futures. That's the biggest net short in a year, but funds reduced the tension on the 10-year portion of the curve.
Another side, they cut their 2-year Treasury futures position by 46,371 contracts for a third week. That's the smallest net short since late August.
There are a few examples of the economic impact of this long-term collapse. A market could have the advantage of more diversified prices, but cash flows are not paying well.
In October's HFRI Macro Index rose 1,16 % first since May, and the highest in four years, the first of the four years in the series.
The opinion expressed here is of the author, a columnist for Reuters.
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