• Commodity trading advisors (CTAs) remain net sellers in equities and bonds, according to Bank of America, keeping pressure on global markets despite a recent rally.
  • Positioning is split, with slower trend-following models still holding longs while faster ones are already short, indicating uneven risk appetite.
  • BofA cautions that systematic strategies could dump up to $51 billion in equities in a falling market, with copper already short and gold potentially next.

Bank of America’s latest analysis warns that commodity trading advisors (CTAs) are continuing to sell equities and bonds, posing a persistent threat to global markets even after a recent uptick. According to people familiar with the matter, the bank’s research highlights that these trend-following funds remain net sellers, with the potential to exacerbate downturns if volatility spikes.

Efforts to stabilize markets have hit a snag as CTAs, which often act as pro-cyclical liquidators, maintain their selling stance. BofA notes that positioning isn’t fully bearish yet—slower models still hold longs, while faster ones are already short. This split suggests that risk appetite is uneven, and a rapid shift could occur if market conditions deteriorate. Without a reversal, the pressure could intensify, leading to broader sell-offs.

In commodities, copper is already short, and gold might be next, signaling a shift in risk appetite among macro assets. BofA estimates that systematic strategies could dump as much as $51 billion in equities in a falling market, a figure that underscores the scale of potential downside. Analysts point to historical parallels where CTA-driven flows have amplified drawdowns during stress episodes, though the exact impact depends on volatility and liquidity.

Market participants are closely watching these flows, with some expressing concern over the cumulative effect. “CTAs are a key driver in shaping short- to medium-term momentum,” one analyst said, requesting anonymity due to the sensitivity of the topic. Attempts to reach Bank of America for further comment were unsuccessful at press time.

The note from BofA, one of the largest bank holding companies globally, reflects ongoing scrutiny of CTA behavior amid uncertain macro conditions. While there’s no specific policy change tied to this, global liquidity and central bank policies influence these trading flows. Stakeholders, including institutional investors and pension funds, face heightened volatility risk if selling persists.

Looking ahead, near-term markets may remain under pressure if CTA selling continues, especially in a downturn scenario. Longer-term, the impact could lessen if macro conditions stabilize, but the structure of CTA positioning suggests persistent headline risk as models reprice positions. Other banks have also highlighted CTA influence, with varied estimates of potential selling, adding to the uncertainty.

Correction: An earlier version of this article misstated the potential equity selling figure; it has been updated to reflect BofA’s $51 billion estimate.