(Bloomberg) — Fast-money wagers against longer-dated Treasuries have hit a record in a sign hedge funds are positioning themselves ever more aggressively for a steeper yield curve.

Net short speculative positions in long bond futures saw the biggest weekly climb since 2007 to reach around 209,000 contracts, according to the latest Commodity Futures Trading Commission data. Meanwhile, net long positions on 10-year Treasuries have risen to their highest since October 2017.

So-called steepener trades are often seen as bets on reflation, while investors are also positioning for the possibility of greater deficits should the Democratic party prevail in November’s election. A new Wall Street Journal/NBC News poll taken after Tuesday’s debate showed Joe Biden leading Donald Trump by 14 percentage points. It was taken before the president was diagnosed with coronavirus.

chart: Speculators long bond positions at record net-short as 10-year yields bets climb

© Bloomberg
Speculators long bond positions at record net-short as 10-year yields bets climb

The surge in shorts appears to be related to new wagers on the direction of the curve, rather than so-called basis trades which bet on the spread between bonds and futures, according to JPMorgan Chase & Co. strategists including Jay Barry.


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“We think curve positioning could be behind those moves,” they wrote in a note to clients Friday. “While outright exposure to duration positions are not large, curve steepening positions remain large relative to historic ranges, and the risk is these trades could be unwound.”

The spread between the 10-year and 30-year yields has widened by more than 30 basis points so far this year and was at around 79 basis points on Monday. It reached near 81 basis points in June, the year-to-date high.

Big Risk for Bonds Is That U.S. Election Actually Goes Smoothly

Similar bets are also being made in the swaption market. Options on swap rates show the cost

My dear long-term readers surely now that I have high hopes for a few chemical heavyweights that have been heavily impacted by the recession this year. The list includes prominent names like Olin Corporation (OLN) and Dow Inc. (DOW) that fared quite well since the publication of my most recent notes on them, as Olin is up ~27.8% since August 20, while Dow has climbed ~11% higher since July 24.

Today, I would like to take a closer look at Trinseo S.A. (TSE), another chemical industry player that has fallen out of favor with investor due to the pandemic-induced challenges, thus the share price has materially corrected, and its yield is now hovering above 6%, assuming a recently declared $0.4 DPS.

Data by YCharts

As the rock-bottom interest rates coupled with a great dividend reset have significantly complicated the portfolio-building and rebalancing for income-focused investors, high-yield names that are in a relatively sound shape to maintain the payout and that also have observable prospects of recuperation do deserve deeper analysis.

To begin with, the stock has lackluster grades that influence its Quant Rating. With the Bearish QR, TSE is at the very bottom of the commodity chemicals industry, which signals investors should act with extreme caution given the precarious risk-reward profile.

Source: Seeking AlphaSource: Seeking Alpha

The only grade that is standing out is A- Value. Due to the valuation reset precipitated by the ripple effects of the pandemic, a few of its trading multiples are deeply below the sector medians and the 5-year averages, while others are skewed due to margin compression.

But does this value-profitability asymmetry indicate that TSE is a value trap and a short candidate? I would not say so. And there are a few reasons for that.

The top line

Being a global materials company, Trinseo has

Bond funds (including ETFs) witnessed their first week of net outflows in 25 for the Refinitiv Lipper fund-flows week ended September 30, 2020, handing back a net $1.1 billion. While investors continued to inject net new money into corporate investment-grade debt funds (+$2.1 billion), they were net redeemers of corporate high yield funds (-$3.6 billion) and flexible funds (-$808 million).

With the U.S. equity market witnessing declines over the preceding few weeks, it’s not too surprising to see equity funds and high yield bond funds suffer net redemptions. However, equity funds only handed back a net $32 million for the fund-flows week (for their seventh consecutive week of net outflows), with conventional equity funds suffering net redemptions of $5.024 billion and equity ETFs attracting some $4.992 billion. For the fund-flows week, the average equity fund returned a handsome 3.17%.

However, in the high yield funds space, both conventional high yield funds (-$2.5 billion) and high yield ETFs (-$1.1 billion) witnessed net redemptions as concerns over credit quality, soft economic data, and a call by the Federal Reserve Board for an additional round of Congressional stimulus have some investors beginning to shun risky assets despite the average high yield fund posting a weekly return of 0.37%. For the fund-flows week, the iShares iBoxx $ High Yield Corporate ETFs (NYSEARCA:HYG) suffered the largest net outflows in the taxable fixed income universe, handing back a net $1.2 billion, while the iShares 20+ Year Treasury Bond ETF (TLT, $426 million) was the main attractor of investors’ money.

Year to date through the week ended September 30, corporate investment-grade debt funds (including ETFs) have attracted the largest share of investors assets (+$154.7 billion), while corporate high yield funds (+$34.8 billion), government Treasury & mortgage funds (+$22.9 billion), and government Treasury funds (+$15.5 billion) were the

By Yoruk Bahceli

AMSTERDAM, Oct 2 (Reuters)Italy’s 10-year bond yield fell to a record low on Friday before a key reading is expected to show persistent deflation in the euro area, while investors favoured safe-haven assets after U.S. President Donald Trump tested positive for the coronavirus.

Investors will pour over the first estimate of euro zone inflation for September to gauge just how weak the euro zone economy is amid signs of divisions with the European Central Bank.

Economists in a Reuters poll expect euro zone inflation to have fallen 0.2% year-on-year in September, unchanged from August, the first time the rate was negative since 2016. But markets are likely primed for a lower figure after German and Italian inflation came in far below forecasts this week.

Meanwhile, investors globally shunned risk in favour of safe-haven assets as Trump’s positive test results added to uncertainty around the highly-contested election in November.

Demand for fixed income broadly pushed Italy’s 10-year yield to a record low at 0.75%, down 3 basis points on the day, according to Tradeweb, which cites the August 2030 benchmark.IT10YT=TWEB

Italian bonds continued to see support this week, despite talks of delays to the European Union’s recovery fund, after regional elections in late September reduced the risk of snap national elections.

Safe-haven German 10-year yields fell as low as -0.551% in early trade DE10YT=R just a touch off their lowest in nearly two months hit earlier this week. They were last down 1 basis point at -0.54%. DE10YT=RR

“With Trump testing positive and euro core inflation set to fall to a new record low, a payrolls miss could push Bunds to highs not seen since May,” said Commerzbank’s head of rates and credit research Christoph Rieger.

The 10-year German yield had fallen as low

Co-produced with Long Player

The midstream sector is full of challenges, and the current uncertainties are very tough on this sector. There are many reasons for this which includes a rapidly slowing U.S. oil and gas production which could negatively impact many midstream companies. Therefore, in this sector, income investors are clearly best served by investing in the best company with the best management. Clearly the best-of-breed is Enterprise Products Partners (EPD). We explain later in this report on why EPD is one of the best high-yielding companies to buy and hold for the very long term.

Tax Note: EPD issues a K-1.

Recent Performance

The energy sector remains out of favor by investors. However, during the past several months, EPD has been a leader in the industry. It has strongly outperformed all the energy indexes including Energy Index (XLE) and the midstream index (AMLP) over the short-term and long-term periods. During the past six months, EPD has returned 20% including dividends.

ChartData by YCharts

Importantly for income investors, we are patient. We are happy to collect high income from super solid companies until Mr. Market realizes that this is one of the best companies to buy and hold for the long run.

For investors, the good news is that EPD trades at very cheap valuations. EPD shares still have a long way to go to approach historical valuations while still offering a sustainable and growing 11% yield. The appreciation potential for EPD is very rare for an income type investment. When one also considers that EPD traditionally grows at a decent pace, these shares could offer a retiree that unusual combination of appreciation and growing generous distributions for the foreseeable future.

Long-Term Debt

This company has felt the pressure to lower debt levels as have many competitors