I have written a bit lately about what a Crowded Trade is (highrockcapital.ca/pauls-blog/yesterday-was-a-telling-day) and here (highrockcapital.ca/pauls-blog/the-usand-the-fed). The basic premise behind a Crowded Trade is the following:
You get the picture...
Such is the current case with the US Treasury (government) bond market (along with the Canadian government bond market too).
I have shown this chart a few weeks ago but here it is again. This is the CFTC CBT (chicago Board of Trade) 10-Year US Treasury Notes Non-Commercial Short Contracts/Futures Only. Effectively, it shows the "short" positions in the market for 10yr treasury bond futures held by "non-commercial" holders (commercial are real companies that need to hedge up interest rate risk while non-commercial are...speculators like hedge funds). Have a look at the record short position:
Does anyone reading this know anyone who doesn't think interest rates are going higher? Clearly a lot of hedge funds think rates are going higher which is why they are sitting with this record short position (shorts would benefit if prices drop and rates go higher).
And given we lean more to the contrarian side than the masses, we bought some 10yr government of Canada bonds last week. We paid $97.71 for them (red arrow). Didn't quite get the bottom, but close. They have popped up nicely to $98.92. Not bad for a government bond in one week. The green channel just may get broken here if shorts run in to buy to cover in their short positions. And if they break to the upside, we will look at technical retracement targets along with our fundamental view and the flow we see at the time. Have a look at this 10yr government of Canada bond chart:
As an old friend and prospective client said to me last night, "so you have three models of which you call one of them Tactical but really everything you do in managing the portfolio is tactical, right?" Truer words have never been spoken.
After 30 years of doing this, I am not about to have a buy and hold portfolio for my household and, given we manage our client portfolios exactly the same as our own portfolios, our clients will benefit from our experience/expertise and overall tactical approach.
Past performance is no guarantee of future performance for any particular security or overall portfolio.