Edward Bolingbroke of Bloomberg Markets examines the mechanics of Treasury futures and the emerging risk of CT D switches. As US 30-year securities approach 6%, the deliverable basket of securities shifts toward longer maturities. This forces asset managers to sell futures, potentially exacerbating the rise in long-end yields.
BNP strategists Guneet Dhingra, Sebastian Mauleon, and Vincent Zhou note that when yields rise rapidly, the CT D migrates toward longer-maturity bonds. A Bloomberg scenario analysis indicates a 30-year yield rise to near 6% could shift the CT D to a 2050 maturity. On Monday, 30-year yields climbed to 5.68%, near recent highs not seen since 2002.
Recent positioning data shows investors are already adjusting. Goldman Sachs strategists George Cole and William Marshall note the drop in long futures positions signals active management of duration extension risk. Commodity Futures Trading Commission data from the week of Sept. 29 reveals asset managers cut net long positions in ultra-long futures by nearly 100,000 contracts, equivalent to $11 billion in current 30-year cash bonds.
SMBC's Monty Gandhi notes the long-bond futures still have upside risk to duration extension despite the ultra-long bond already shifting to higher duration CT D.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing