Flows disappoint the Carry bulls – there is a notable loss of demand in Citi’s data for high-yielders this week. A quick look at the Flow Risk Index (Chart of the Week) highlights lower vols are simply not enough to encourage clients to keep buying.
Post UK elections; GBP buying has entered a 10% tail for Citi flows. Sterling is now considered a consensus position and GBP risks become one to watch (page 16). To be clear, it is likely too early to fade the buying trend and we are not recommending accounts sell GBP. Positioning by Real Money is not stretched, and we have not seen GBP selling from either real money or leveraged accounts – a necessary signal for a change in demand.
In the Scandi’s, flows highlight a divergence with clients selling long NOK positions (3rd highest carry in the G10), and buying back SEK (i.e. NOKSEK lower). SEK buying is again the strongest directional signal on the week – for a 3rd week in a row. See pages 20 & 21 for further details on client positioning.
Strongest Directional Signals
· Buy SEK – For three weeks in a row, our SEK flows have highlighted they are prone to buy-backs as accounts unwind their short SEK positions (pages 5, 21). A reversal is underway and flows continue to recommend buying SEK.