Positioning does not suggest primary dealers are "Bond Vigilantes"

 

Who are the bond vigilantes in the Treasury market today? I want names. Well, I would settle for a sector or a group of players. Treasury primary dealers are one group that could be likely suspects as evidenced by their inventory positions. If levered dealers thought rates should fall, they would lighten their holdings. We could see net positioning fall. Dealer positions are noisy data but with the right analysis, you can extract some important information on the tilt in market rates. However, the evidence on their views is weak. 

There was a big increase in long positioning with the March liquidity collapse, yet net positions do not tell a story of dealers selling off inventory in anticipation of rate increases. Long bond positioning has been stable. 10-year Treasuries have shown a decline to negative in February, but positions in the sector have been relatively low for some time. The shorter maturities have also been relatively stable since summer. A question exists as to whether dealer inventories are too low relative to the supply being generated but that is a separate issue.