Investors are positioning ahead of the unemployment report, with bond yields and short interest in real estate and materials signaling caution.

• With the unemployment report arriving tomorrow, investors are pre-positioning in mortgages, bonds, and related equities.

• The yield curve currently has a non-standard shape, with a downward slope out to 5 years and an upward slope thereafter. The 2-year and 10-year yields, which typically determine whether the curve is inverted or normal, are about even.

US Treasury Yield Curve

• TLT the long-dated bond EF short positions continue to rise after the election to a high for the year.

TLT

IEF

• IEF Intermediate bond position is falling.

• This is positioning for the long bonds to fall and the yields to rise, and at the same time the intermediate to rally.

• The 2-20 spread is flat, so the curve is neither normal nor inverted.

• If the positioning is right the long end rates will rise and the medium will fall making the long end of the curve steeper.

• Most of the sectors have their short interest down recently but are few are up.

• Specifically, the real estate sector and is short interest is higher in real estate and materials

• The message is there is increased interest in both short side in Real Estate and the homebuilder sector. These sectors are also down.

XHB

XLRE

• The XLB (materials) also has the same pattern and may be related.

• If the long rates rise the housing sector will suffer due to higher mortgages

Pre-unemployment report positioning highlights risks in real estate and bonds. Contact us for more insights into these developments.

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