Markets enter central bank week with unprecedented short positioning in US bonds, while sterling reflects excessive pessimism that leaves it vulnerable to sharp volatility.
Markets are focused this week on a series of consequential decisions by major central banks, amid stark divergences between interest-rate pricing and risk-asset performance. The most striking feature of this week's data is the unprecedented surge in short positioning in two-year US Treasury notes (ZT), which reached -1.74 million contracts, a record deviation from familiar historical norms. This deep pessimism toward bonds coincides with notable resilience in equity indices, with the S&P 500 rising 7.5% over the past four weeks despite persistent net short positioning.
At the same time, currency markets show a sharp divergence reflecting contrasting expectations for domestic monetary policy. The British pound sits at the 9% positioning percentile—the most short—reflecting deeply negative conviction ahead of the Bank of England's monetary policy report. By contrast, capital is accumulating in cyclical risk assets, with Bitcoin at the 96.8% percentile and copper at 92.9%, creating pockets of crowded positioning that could lose momentum if central bank guidance, particularly from the Federal Reserve, is more hawkish than expected.
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This part of the paper is open to EL7 Pro members and to free members who use one of this month's free papers on it. The paper goes on to analyse the numbers, the causes and what they mean for investors, with tables, charts and sources.