Managed futures performance for May was driven by one sector, global bonds. The surprise events in Italian politics led to a flight to quality move into safe bonds worldwide. This sharp reversal caught most short trend-follower flat-footed. The commitment of traders reports has shown a strong short tilt in managed money. The size of the move over less than ten trading days ensured stops would be hit and positions changed. The question was just how much pain managers took in this sector. Notably, the markets sold off on the good economic employments numbers to further hurt managers who switched to longs earlier in the week. A similar set of events followed the rates markets. Expectations for fewer Fed hikes given the political turmoil only reversed again after the US employment number.

Stock index performance was mixed on shallow trends or reversals in stock markets. Trading increased in difficulty with a spike in market volatility. Nevertheless, a bright spot for many traders was continued sell-off in many currencies. The dollar rally has continued with well-developed trends. Energy markets moved higher, yet there has been an increase in volatility based on discussion of production increases. Gold has sold-off like currencies; however, there were more limited opportunities in base metals. Commodity markets were mixed with grains starting to trend lower now that US planting is done for corn and soybeans. Sugar and coffee, while showing trends, offered limited opportunities given the size of positioning for most managers.

Managed futures have been hurt by the February volatility shock and now the May bond shock from political risks. In addition, economic surprises generally hurt managed futures, especially in the global bond market sector, which is usually the largest sector of risk exposure.