📌 Treasury Yields Hit Highs While US Stocks Melt Up, CTA Long Equities and Short Bonds Pushed to the Limit

BullSignal Automated Editorial System Published

The 10-year US Treasury yield recently surged to 5.35%, hitting its highest level since 2002. According to conventional asset pricing principles, a soaring risk-free rate directly depresses equity asset valuations, yet the US stock market has shown a rare divergence: the Nasdaq index has exhibited a one-way “melt-up” near historical highs, while the S&P 500 ETF (SPY) has recorded higher monthly lows for 7 consecutive months, setting the longest winning streak since 2017 and reprising market characteristics of sustained upward momentum under ultra-low volatility.

This one-way trajectory, seemingly detached from fundamental constraints, is forcing quantitative capital to push leverage to the limit. Latest positioning data shows that systematic trend-following strategies such as CTAs have become extremely crowded on a medium-term horizon: their long allocation to S&P 500 futures has reached the 100% upper limit, while short allocation to US Treasury futures has likewise been maxed out at 100%. Quantitative rules of chasing rallies and cutting losses have further solidified the mechanical cycle of “buying equities and selling bonds.”

However, cross-market historical experience indicates that the dampening effect of discount rates often comes with a lag. Whether in 1994 or 2023, equity markets ultimately could not escape a phase of pressure after US Treasury yields continued to climb. The current extremely one-sided positioning magnifies the fragility of the trading structure; once a high-interest-rate environment triggers a liquidity fracture, fully maxed-out long and short positions will lose their cushions, easily triggering an asymmetric stampede-like liquidation.

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