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As Morgan Stanley's derivatives strategist Chris Metli notes, CTAs - those mindless trend-followers who just ride on momentum waves until they crash - are still short bonds and at current yields have to buy $95bn notional of TY-equivalent duration over the next week, which as Morgan Stanley says "could continue the bond rally and put pressure on stocks as equity investors fear the bond market knows something they don’t about future growth prospects.
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JPMorgan says that "momentum traders such as CTAs, retail investors and pension funds have likely been behind the recent bond rally," instead of "tactical institutional bond investors." The rally on prices saw yields decline to levels only seen during the pandemic, but JPM forecasts a rebound. "The decline in bond yields in recent weeks does not signal a change in the medium-term fundamental picture, which in our mind is a picture of strong growth, continued inflation surprises and of a shift to central bank tapering towards the end of the year."