Asset managers, who typically avoid delivery, have accumulated unprecedented net long positions in the WN futures sector. This concentration, a shift from shorter-duration sectors, is expected to unusually pressure WN calendar spreads as these positions are rolled early.
Related Insights
While funding rates are the main driver for many Eurex futures rolls, the Bund and Shats calendar spreads are different. Their performance is primarily determined by the evolution of the cheapest-to-deliver (CTD) yield curve and relative value dynamics, making them directional to yields.
A strategic divergence exists in EM corporate credit. Mandate-bound real money funds feel compelled to stay invested due to a lack of near-term negative catalysts, while more flexible hedge funds are actively taking short positions, betting that historically tight spreads will inevitably widen over the next 6-12 months.
With both the Federal Reserve and European Central Bank expected to remain on hold, forward financing rates are stable. This removes central bank policy as a key driver for the upcoming bond futures roll, elevating the importance of technical factors like investor positioning and repo market specifics.
Contrary to historical norms where Eurex futures lack delivery option value, the German Buxl (30-year) future currently presents some. This is driven by potential Cheapest-to-Deliver (CTD) switches, particularly to a lower coupon bond in a sell-off, creating an asymmetric upside risk for the delivery option's value.
Unlike typical investors who chase performance, sophisticated institutions often rebalance into managed futures when the strategy is in a drawdown. They take profits after strong years (like 2022) and re-allocate capital during weak periods to maintain strategic exposure.
Lacking official CFTC-style data, analysts estimate Eurex futures positioning using open interest and price changes. This proprietary analysis reveals significant long positions in Italian BTP and German Schatz futures, corroborating client survey data that shows the European carry trade is a popular theme.
A proprietary model tracking investor positioning shows a historic degree of credit bullishness, second-highest on a median basis. Such extremes typically precede adverse outcomes in financial markets, increasing the probability of a violent correction or choppy trading over the next one to three months.
Asset managers tend to roll their futures positions early to avoid the complexities of the physical delivery period. This concentrated activity creates predictable market pressure. In sectors where these managers are net long, their early rolling can exert a bearish influence on calendar spreads.
Unlike in the US where CFTC data is available, J.P. Morgan's European analysts use a proprietary methodology to estimate investor positioning. They reconstruct positions by analyzing changes in open interest and prices, allowing them to infer market sentiment for Eurex futures.
Since 2022, highly leveraged hedge funds have bought 37% of net long-term Treasury issuance. This concentration makes the world’s most important market exceptionally vulnerable, as any volatility spike could trigger forced mass selling (degrossing) from these funds.
