XLI, the Industrial Select Sector SPDR ETF, has reversed course from the tightening trend flagged here last week — the lending market has loosened dramatically, short interest has edged back, and the fund is trading near multi-week highs.
The most striking development is in the borrow market, and it runs directly counter to the picture from June 10. A week ago, availability had tightened to around 90% and cost to borrow was climbing toward 0.84%. Both have since unwound sharply. Availability has expanded to 219%, the loosest reading in at least a month, with 39 million shares available in the lending pool. Borrowing costs dropped to 0.48% — a fall of more than 40% on the week and roughly half the level prevailing through most of May. That kind of rapid loosening typically reflects short covering rather than new supply entering the pool: when borrowers return shares, availability rises and costs fall together, which is exactly what happened here. Short interest confirms the direction: it dipped around 0.6% on the week to 21 million shares, or 13.8% of the float, continuing a gradual slide from the late-May peak of approximately 24.2 million shares.
The contrast with late May is worth holding in mind. Between May 19 and May 22, availability compressed from 12% all the way to under 10% — the tightest the lending pool has been in the past 52 weeks — while cost to borrow topped 1.1%. That episode has fully unwound. The short score, which measures the intensity of bearish positioning across multiple dimensions, has dropped from 66 on June 11 to 60.5 today, its lowest reading over the available history. Shorts are present at 13.8% of the float — still an elevated level for a broad sector ETF — but the pressure behind that position is clearly easing.
Options positioning tells a similar story of diminishing defensiveness. The put/call ratio runs at 3.6, modestly below its 20-day average of 3.8 and sitting around 0.7 standard deviations below that mean. For context, the PCR hit 5.5 at its 52-week high and has trended down since late May when it was regularly printing above 4.0. XLI is structurally put-heavy as an ETF used for hedging industrial exposure, so a PCR above 3 is normal — what's notable is that even within that elevated range, the skew has eased alongside the borrow market. The fund gained 2.4% on the week to close at $179.85, adding to a 4.9% gain over the past month.
Institutional ownership at the last quarterly filing shows the major banks broadly adding — Morgan Stanley holds 7.1% of shares and added 1.4 million shares in Q1, Wells Fargo added 1.1 million, and UBS built a 1.2 million share position. Goldman Sachs went the other way, trimming by 1.9 million shares. The pattern is consistent with broker-dealer rebalancing activity typical for a large ETF rather than a directional conviction call by any single institution.
The question worth watching now is whether this loosening holds. The late-May squeeze showed how quickly the XLI lending market can tighten — availability went from above 50% to near zero in under two weeks. With short interest still elevated at 13.8% of float and macro uncertainty around rate decisions unresolved, the next signal to watch is whether availability stays above 200% or begins contracting again as the week progresses.
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