How are CTAs positioned getting into 2025?

Investing.com — Development-following Commodity Buying and selling Advisors (CTAs) are ending 2024 with slight positive factors, in line with Financial institution of America Securities.

The benchmark CTA index is up 2.55% year-to-date as of December 26, recovering from a risky yr that noticed it slip into destructive territory in October earlier than rebounding.

“Via April this yr the index noticed positive factors of 12% however pull-backs in equities, USD, and choppiness in bond markets noticed pattern followers give again all of the upside after which some with the index turning destructive on the yr in October,” BofA analysts led by Chintan Kotecha stated in a Friday notice.

CTAs at present maintain “stretched lengthy USD, quick bonds, and lengthy US large-cap equities” positions. The restoration in latest months was pushed by robust USD positive factors and bond shorts, whereas fairness longs within the US stay intact however should not thought-about stretched. Elevated fairness volatility has saved the value pattern for equities from totally extending into lengthy territory.

In the meantime, SPX gamma, which refers back to the sensitivity of choices sellers’ hedging positions to adjustments within the underlying S&P 500 index, has been “extremely risky this week,” BofA emphasizes.

As an example, on Monday, SPX gamma was +$5.6 billion however rose sharply to +$15.8 billion by Tuesday—a rise of practically $10 billion in a single day. Analysts level out that this variability has been partly pushed by an “outsized place” within the SPX Dec. 31 6055 calls.

By Thursday, gamma had settled at +$13.9 billion, rating within the 96th percentile year-to-date. Nonetheless, with the Dec. 31 expiry approaching, “gamma could also be fairly delicate to identify strikes,” analysts notice, probably falling to zero at an S&P 500 degree of 5940 or climbing to +$17 billion at 6060.

Within the fixed-income area, BofA’s CTA mannequin reveals a 57% quick place in 10-year Treasury futures. Bond positioning displays a broader bearish stance throughout numerous durations, though sure areas, like China 10-year bond futures, are lengthy at a major 96%.

In commodities, CTAs exhibit a blended outlook, with gold sustaining an extended place (35%), whereas copper, soybean oil, and soybeans are considerably quick.

Foreign money positioning is equally polarized, with the euro (EUR/USD) and pound (GBP/USD) closely quick, whereas USD/JPY and USD/CAD maintain lengthy positions.

BofA’s mannequin additionally supplies insights into potential market shifts. As an example, the Nasdaq 100 present lengthy place at 71% pattern power may unwind if the index sees a 2.4% decline. Equally, USD/MXN longs might face a set off level with a 3.0% worth drop.