OPEX Reddit Mentions | ChartExchange

Before we start, I’ve added a TLDR after as quite a few of you asked for one.
The bond situation is developing broadly as expected from yesterday’s analysis
https://preview.redd.it/difn4ju1ppkh1.png?width=740&format=png&auto=webp&s=c1db3c875903a0a59d9ea639b7903ee19732a9a4
As this intervention was never large enough to reverse the rise in long-term yields I am now leaning towards the thesis that Treasury and the Fed are setting the stage for a regime similar to the one we saw under Yellen after listening to Bessent's interview yesterday.
https://preview.redd.it/sbvrolt2ppkh1.png?width=680&format=png&auto=webp&s=c2b7a5acfac333b877dab7abab57f4f485e26ee2
A refresher on Yellen’s regime - 2023, Yellen slowed the increase in longer dated issuance and financed more of Treasury’s borrowing through short term bills (sound familiar?).
She then launched the buyback programme at $2bn per operation which Bessent increased to $4b
The policy helped suppress the term premium, while the large reverse-repo balance allowed money-market funds to absorb the additional bills without draining bank reserves.
Once the Fed also came out more dovish, both parts of the yield equation moved lower together and the expected path of policy rates fell while Treasury’s issuance strategy limited the term premium. That supported bonds, equities and liquidity
If you are not familiar with the yield equation:
Long-term yield = expected path of Fed rates + term premium
The Fed mainly controls the first part and reasury can influence the second
If you’ve been following me for a while, you know my models still suggest the market has become too hawkish on the Fed and If they simply comes out less hawkish than currently priced we’re going to see both parts of the yield equation move together - lower expectations for future policy rates and a lower term premium from reduced duration supply.
Basically,Treasury and the Fed are recreating the Yellen regime.
That combination is supportive for bonds, equities and broader liquidity, much like the regime that was designed under Yellen.
Now, the main thing is that the buffer that Yellen had to absorb bill issuance without draining bank reserves (RRP) is not there anymore.
However, this could give the Fed an excuse to start reserve management purchases and the combination is very similar to QE.
Even if we get a more hawkish Fed and Waller does not play ball, increasing long term yields,Bessent said that he is ready to increase the operations even more thus pulling more liquidity from bank reserves and again forcing the Fed to buy bills or repo.
Now, to tie things up, leveraged funds have been building shorts on the Ultra Bond Futures for the past year (CFTC data, 37th percentile short), and while this is a part of the so called basis trade (long cash treasury + short treasury futures + repo financing ), they can still get squeezed if we get a more dovish Fed or weaker macro despite the trade being hedged.
Futures can rally faster as this is the fastest and most liquid way to add duration after a dovish surprise and the fund then loses more on its leveraged futures short than it earns on its cash bond and gets margin called thus having to unwind.
**TLDR:**
The Treasury and the Fed are setting up a liquidity boost similar to what we saw in late 2023 which will boost equities, gold, bonds. A more dovish Fed, combined with what we are seeing from the Treasury could also squeeze leveraged funds which are short bonds thus making the move more aggressive.
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Now, on to the positioning charts. As per yesterday’s analysis, the SPY drifted towards the $760 level which has now moved to $750 and today and market makers are still trading with price action. This translates to volatility. The positive part is that quite a bit of the negative positioning which was accumulated the past couple of days is going to be cleared up today and, in my experience, when the market is down into OPEX it tends to reverse.
https://preview.redd.it/h5ck4py7ppkh1.png?width=896&format=png&auto=webp&s=14f362be0f2c4a289b448ec4ac3db47bc1c6de9f
The plan for today’s session is to see whether it pushes through the market maker exposure between 765 and 770 or we start drifting towards $750 as that’s the new key level from market positioning.
As indices tend to move rather unpredictably on OPEX it’s a good pratcies to reduce risk if you intend to trade.
https://preview.redd.it/e33kvkz8ppkh1.png?width=887&format=png&auto=webp&s=861c78b8bf5593ce947be607e90db9a10b49209c
Qs face a similar situation with $715 being the main resistance with market maker exposure likely pressuring price action up to $720. $700 is likely to provide opportunity
Overall I am staying cautious today as over the years I've learned not to hold much exposure over the weekend when there are interventions and geopolitical uncertainty.

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