Iflationistas think a major inflationary move is at hand and they bet that with futures. I suggest the opposite. A commitment of traders (COT) report for 10-year treasuries shows record bets that treasury yields are headed higher.

Large Spec Contracts

  • Long: 606,022
  • Short: 1,058,155
  • Net Short: 452,133
  • Bullish: 36%

Small Spec Contracts

  • Long: 371,438
  • Short: 575,158
  • Net Short: 203,720
  • Bullish: 39%

10-Year Yield

Inquiring minds may be wondering what speculators were doing mid-2016. The feature chart is easy to read but it does not go back far enough. Here is a second treasury chart that completes the picture.

Summary

  • Speculators were on the wrong side of a major, 123 point basis point, surge in yield starting mid-2016.
  • In early 2017, right as yields were ready to temporarily dive, speculators piled on with shorts. Yields rallied about 55 basis points.
  • Since December 2017, speculators amassed a new record short position. Those in early (December 2017), pick up 55 basis points.

Lisa Abramowicz Offered This Tweet

Now what?

I expect those record shorts will get blown out of the water. Only a small minority see things the same way.

As part of Weekend Reading, Lance Roberts suggests Rates Still Headed To Zero.

According to Roberts, “Rates are ultimately directly impacted by the strength of economic growth and the demand for credit. While short-term dynamics may move rates, ultimately the fundamentals combined with the demand for safety and liquidity will be the ultimate arbiter.

I agree.

Rear View Mirror

Overdue credit card debts are piling up. More Americans are falling behind on mortgages. Car sales are dismal. Consumer spending is drying up. The global economy is slowing. These numbers are huge deflationary. Here are my definitions.

Inflation and Deflation Definitions

  • Inflation: An increase in money supply and credit, with credit marked to market.
  • Deflation: A decrease in money supply and credit, with credit marked to market.

You may not like or agree with my definitions, but in a fiat credit-based global setup, this is how the real world works.

Deflationary Debt Trap Setup

  • Credit card delinquencies are priced as if they will be paid back. They won’t.
  • As soon as recession hits, defaults and charge-offs will mount. In turn, this will reduce the amounts banks will be willing to lend.
  • Subprime corporations who had been borrowing money quarter after quarter will find they are priced out of the market, unable to roll over their debt.

Rear-View Mirror Thinking

Those looking for a huge, sustained, inflation boost fail to understand credit dynamics.