Trend-following funds have taken a record short position in global bonds, with the US CPI report expected to be the key determinant of their profit and loss.
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According to Bloomberg, data from UBS Group shows that Commodity Trading Advisors (CTAs), which seek to profit from price movements across various asset classes, tripled their underweight positions in bonds in July from two weeks prior. Since then, these bets have remained stable. If the upcoming U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) push Treasury prices higher, the CTAs face the risk of losses. Strategist Nicolas Le Roux noted that a 1-basis-point move in the 10-year Treasury yield ahead of inflation data translates to roughly $300 million in profit or loss for CTAs, with this exposure being the largest UBS has recorded since it began compiling relevant data in 1990.
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