Financial markets are sounding the alarm bells as the M2 money supply experiences unprecedented levels of contraction. Notably, this is the first time in U.S. history that Treasuries have recorded three consecutive years of losses. The concern deepens with reports of a substantial rally in U.S. bonds last week, primarily driven by hedge funds that had amassed the largest short position in debt since 2006. Observers have noted that this scenario, with short positions on U.S. Treasuries at an extreme, posed a significant risk and could potentially trigger unexpected consequences.
BEWARE: M2 money supply is contracting at the deepest levels EVER seen pic.twitter.com/D1gBchaEwg
— Game of Trades (@GameofTrades_) November 5, 2023
FIRST TIME IN U.S. 🇺🇲 HISTORY HAVE TREASURIES LOST 3 YEARS IN A ROW 👇 pic.twitter.com/vdsVmk64Bd
— Win Smart, CFA (@WinfieldSmart) November 6, 2023
Last week’s tremendous rally in US bonds was set up by hedge funds having the biggest short position in the debt since 2006. “It feels like short US Treasuries positioning was at an extreme last week, which was an accident waiting to happen.” https://t.co/eCL32CdJvs
— Lisa Abramowicz (@lisaabramowicz1) November 6, 2023
One must wonder what European junk bonds know that the US instruments don't (yet).
In my view:
The potential widening of high-yield spreads remains one of the most compelling macro trades. pic.twitter.com/va3zogP5Hs
— Otavio (Tavi) Costa (@TaviCosta) November 6, 2023