CTA Turns Fully Risk-on, Bond Bearishness Approaches 30-Year Extremity

UBS Global Research released the Dual Monthly Report on CTA Position and Fund Flow on May 12, with the core conclusion being: The current systematic funds are in a highly Risk-on state overall, with a high degree of consistency in long and short directions - they are bullish on stocks, credit bonds, and commodities, while bearish on bonds and the US dollar.

Equities: Positioning near the mean, limited room for further addition

CTA has shifted its stance from indiscriminate buying to selective deployment in equities. Japanese equities (Nikkei 225 and TOPIX are both at full momentum signals of 1.00) and the Taiwan Weighted Index (1.00) lead the world, with the S&P 500 momentum signal at 0.83, also in a high position. However, the overall equity position is close to the historical long-term mean, and the model judges that there is limited room for significant addition in the short term. Scenario simulation shows that if the market fluctuates, CTA will show a slightly net selling tendency, with the main selling pressure coming from the UK and European stock indices.

Bonds: Short positions approaching a 30-year extreme, being highly vigilant for short squeeze risks

This is the most concerning risk point in this report. CTA's net short position in global government bonds is approaching the 1990s' first percentile, which is the most severe level of short positions in over 30 years. UBS warns that this structure makes the market reaction function extremely asymmetric. If global yields fall by just 30 basis points, it could trigger a large-scale stop loss and short covering, with the model estimating that a DV01 duration of up to 2.5 billion USD will emerge. In contrast, the threshold for short covering in short-end interest rate futures is much higher than in long-end, and there is no expectation of significant fund movement in front-end contracts in the short term.

Credit Bonds: After 3-4 weeks of aggressive addition, be vigilant for short-term profit-taking

CTA quickly rebuilt a massive long position in credit bonds covering investment grade, high yield, and iTraxx in just 3-4 weeks. UBS issues a tactical warning that the speed of re-risking is too fast, and the pressure of profit-taking in the short term should not be ignored; liquid investment-grade credit bonds are particularly vulnerable.

Foreign Exchange: US dollar short positions double in two weeks, fund flow is expected to stabilize gradually

In the past two weeks, CTA has sold about 40 to 50 billion USD, and the short position of the US dollar has doubled directly. High confidence long positions are focused on offshore RMB, LatAm currencies (Mexican peso, Brazilian real), and commodity currencies (AUD, NZ