Halister News

(Bloomberg) -- Nomura strategists Penglu Zhao and Stanley Sun issue views on Treasury futures calendar roll.

• NOTE: First notice for June Treasury futures complex is May 31
• Bullish TUM7/TUU7; shorts should roll early
  • TUM7 cheapest-to- deliver has been trading cheaper than TUU7 CTD, so any valuation adjustment in front contract may help widen the roll
  • Other reportable positions have “elevated” net shorts (-12%), which may also put widening pressure on the roll
• Bearish FVM7/FVU7; longs should roll early
  • FV contract has “some negative basis,” which may lead to some tightening pressure on the roll
  • Asset managers remain “dominant players” in the contract, even though record net longs have declined into May
• “Mildly” bullish TYM7/TYU7; shorts should roll early
  • Since the belly of the curve is likely to remain range-bound, it’s expected the micro curve may have “a more mean-reverting pattern rather than any directional shift”
  • The strong correlation between positioning by non-reportables and TY pricing may put widening pressure on the calendar spread as shorts are rolled
• “Mildly” bullish UXYM7/UXYU7; shorts should roll early
  • RV curve valuations may be the main driver; Feb-27 Treasury likely to cheapen vs Nov-26 security as liquidity premium wanes
  • Trend expected to continue into the roll, which may cheapen the UXYU7
• Neutral USM7/USU7
  • USM7, USU7 share same CTD; in previous roll cycles when both contracts shared a CTD, “calendar roll fluctuations were limited to a very tight range”
  • Asset managers still have largest net long positions, “despite some reduction in recent months”
• Neutral WNM7/WNU7
  • Although asset managers still hold record net longs and they’re “dominant players in the market,” their activities may not have a “meaningful impact on the roll at this time”
  • Both contracts have equal delivery probabilities split between Aug-43 and Nov-43 Treasuries, yet the bonds have “very close maturities and similar coupon rates,” so a switch may have limited impact on the roll

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Greg Chang