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Investing.com -- Commodity trading advisors (CTAs), or systematic trend-following funds, are building short positions in equities while continuing to sell U.S. Treasurys, with positioning risks skewed toward further downside if market conditions fail to stabilize, according to Bank of America (BofA).
The bank’s models show “faster CTA models are already leaning short equities,” while slower trend-following strategies remain closer to neutral for now. This gap has been visible in recent market action, with less synchronized behavior across systematic funds.
However, BofA warned that time could act as a catalyst. "Absent a clear recovery in equity prices, slower signals can deteriorate quickly, and within roughly the next week we could see a more material turn toward net short equity exposure," analysts led by Chintan Kotecha said in a note.
The setup leaves room for a larger build in short positions, as realized volatility has not yet surged enough to force meaningful reductions in risk budgets. That could amplify selling pressure if slower models begin to align with faster ones.
Flows in rates markets remain firmly negative, BofA notes. Trend followers are continuing to sell U.S. Treasury futures, with yields rising and the 10-year reaching its highest level since July. Selling has extended across the curve, with risk-management triggers “starting to bite across the 5y–30y complex,” and scope for additional short positioning if rates stay under pressure, the analysts said.
Outside the U.S., CTAs are also adding to short positions in German Bunds, while in foreign exchange, the bank’s model points to further selling in the euro and British pound. Emerging market signals are weakening as well, with some investors likely exiting Mexican peso longs after recent downside triggers.
In commodities, losses in gold have partially offset gains in oil. Long gold positions built over the past year have likely been unwound following the metal’s sharp weekly drop, though analysts said trend signals remain elevated and still “some distance from outright shorts.”
Oil exposures, meanwhile, continue to support performance but could unwind if prices fall more sharply, the analysts noted.
Broader positioning data suggest systematic strategies remain biased toward selling in the near term. BofA estimates that such funds could sell up to $73 billion in a down market over the coming week, with flows negative across most scenarios, reinforcing the risk of continued pressure on equities.