Stealth Demand for 10-Year Treasuries

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Scott Pluschau

NEW YORK ( ETF Digest) -- I recently wrote a few articles explaining the Commitments of Traders report and the open interest of futures.

Here's last week's article on the euro and its COT report.

In the latest COT report (Jan. 18 - 24) there were some major moves made by the commercial traders in 10-year Treasury futures.

Below is a chart of the iShares Barclays 7-10-Year Treasury Bond ( IEF) exchange-traded fund. There was a long-term multipoint trend line that had been broken down, and it has since rallied to the backside of the trend line since the cutoff date for this COT report.

However, here is where it gets interesting. In this COT report, the commercials actually increased their long positions by buying 118,229 contracts, and reduced their short positions by buying 69,966 contracts.

That's a net increase of 188,195 contracts to the long side for the week. Open interest only went up by 20,012 contracts during that week. This is an incredible display of stealth demand from the commercials in the face of a selloff and a significant trend line being broken down.

What in the world do these traders know about the fundamentals for U.S. Treasuries to soak up that supply so aggressively? Is there a massive deflationary event about to happen? What has happened to these positions since price has rallied? Are the commercials still buying?

I don't know how they're so confident, because the commercials are bullish on the euro currency.

In the COT report for the euro, the commercials increased their euro long positions by 10,181 contracts and decreased their short positions by 250 contracts this week as well. Commercials are currently long 248,435 contracts and short 50,819 in the euro, nearly 5-to-1 bullish.

At this time, I am beyond eager to see this upcoming Friday's COT report since we had the intense price rally of the past few days in the 10-year Treasuries and the euro. I certainly plan on posting my observations and/or opinions afterward.

Subscribers to ETFDigest get email alerts for trades being placed in the model portfolios.

-- Follow this writer on Twitter/ScottPluschau

Comments are welcome at Scott.Pluschau@etfdigest.com.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

If you liked this article you might like

Will Risk-Parity Strategies Kill the Bull Market?

How I'm Setting Up for October Volatility

Improve Your 60/40 Portfolio? Decrease Exposure to Stocks and Increase Volatility