Investing.com -- Despite a strong rebound in risk assets, momentum-driven Commodity Trading Advisors (CTAs) are holding back from aggressively increasing long positions, according to UBS.
“CTAs have been supporting the rebound in risky assets,” UBS wrote in its latest biweekly positioning update, noting that they purchased approximately $30 billion in global equities since the last report, with a preference for developed market indices.
However, the recent surge has come too quickly for systematic traders to jump in further. “Given the speed and strength of the rebound, CTAs are not rushing to add. They prefer smoother trends and will wait for price confirmation before pressing the ‘buy’ button hard,” the analysts said.
In fixed income, CTAs are poised to turn more negative. “Uninspiring price action and negative base effects... CTAs are about to turn negative duration again,” UBS said.
The bank expects bond selling pressure across all regions and maturities, with Korea’s 10-year bonds seen as particularly vulnerable. Roughly $50 million in bond DV01 is forecast to be sold in the next two weeks.
Credit positioning is said to be shifting more positively. UBS noted that CTAs have “already covered their shorts, and are about to initiate new longs,” citing tighter spreads and attractive carry that make bearish trades harder to maintain.
In currencies, CTAs reportedly sold about $30 billion of U.S. dollars in May and shifted focus from G10 to emerging market currencies. “We expect decent profit-taking in G10 FX, especially in JPY,” UBS added.
On commodities, “CTAs remain heavily long Gold and heavily short energy,” though the firm expects some profit-taking in both.
Overall, UBS said current CTA signals are “neutral stocks & bonds, bullish credit & Gold, bearish USD,” with regional equity preferences favoring China, the EU, and Latin America, while being bearish on the U.S. and Asia ex-China.