For all the talk of record (at least until recently) speculative Treasury shorts, rising inflation and a guaranteed selloff in long-dated debt – at least according to virtually every sellside desk on Wall Street – one group of investors is clearly on the other side of the trade: Wall Street itself.
According to the Fed’s latest weekly Primary Dealer holdings report, the net positions in Treasury coupons due in 11 or more years is now the highest in records dating back to 2001, rising by $3.8 billion to $26.5 billion as of the last week of March.
Which means that just like the “smart money” has been selling stocks to retail investors for money on end, so the same “smart money” has been bidding up the long end in recent weeks, buying whatever is available in the market, and taking its holdings to a level that screams “deflation.”
Contrast the current record long position in >11 TSY, with the record short going into 2008 when oil was soaring, and when inflation was indeed out of control.
While there are various other considerations, based simply on the chart above, the US Primary Dealer community is not only not “buying” the reflation thesis, it is actively preparing for just the opposite.
Source: NY Fed
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