The off-loading of short-term USTs It's not perfect, we know. But the weekly CFTC derivative positioning report is still a useful barometer when it comes to gauging investor sentiment. On which note here's the breakdown of the latest report with respect to UST spec positioning, courtesy of TD Securities: Total Treasury market positioning was shortened significantly in the latest week, with total Treasury longs hitting the shortest levels in over 8 months. The biggest changes on the week came in 2s and 10s, where the market retains the "longest" position on a 52-week basis. Interestingly, 5yr positioning turned net short in the latest week, the first short position in the tenor since April 2010. We believe that this simply underscores the extent of the change in market positioning in recent weeks, with the belly of the curve selling off significantly, potentially providing a favorable near-term re-entry opportunity. Meanwhile, when it comes to the data on primary dealers, Nomura notes: For the week ending Jan 2, 2013, primary dealers‟ positions in USTs declined once again. Specifically, coupon USTs dropped by $22bn, the largest net reduction since September 19, 2012. This followed net selling of $19bn the week prior. Before the two weeks of net selling, dealer coupon UST positions were near 2012 highs as Operation Twist came to an end. In addition, dealers also saw their T-Bills holdings drop by $9bn. We assign "mixed-to-bearish" for these flows in the PDP category as some of this offloading seemed opportunistic as customer demand for front-end USTs rose now that Twist ended. That, along with TAG expiration (where cash might leave banks into money funds and/or USTs), helps explains the decline in S/T. The other side of the story is also a reflection of improved risk-appetite which might be diminishing demand for USTs. What we think Nomura mean is that while much of the UST sell-off is clearly linked to US fiscal cliff relief, some part of the UST positioning decline is also related to the expiry of the Transaction Account Guarantee, which has led many primary dealers to off-load short-term paper to those seeking refuge for newly flighty uninsured deposits. Furthermore, dealers will have most likely positioned themselves ahead of time to take advantage of that flow. Which, possibly explains why even though CFTC spec positioning is down on the long-front, it's still firmly net long everywhere bar the five-year area. FYI, Nomura also states that mutual funds saw a net inflow of $2.9bn on the week, the 27th consecutive week of net inflows into bond mutual funds. Related links: TAG, you're zero - FT Alphaville MMFs, deposit insurance, and regulation in the age of shadow bank runs - FT Alphaville UnTAGged - FT Alphaville