Just a quick post. I have been bearish on Treasuries for a while. Why? I see investor mindset has completed changed on fixed income from 10 years ago. Back then, no one thought buying a 30 year Treasury at 4% was a sensible trade, but when yields moved to 1% during Covid, everyone became convinced of their ability to rally when thing are bad. But for me bonds reflect politics - and politics is no longer deflationary.
I like shorting TLT, for reasons I will leave behind a paywall, but I was intrigued to note that TLT and the S&P 500 are telling very different stories. Equities are saying recession. TLT is saying…. well nothing. It has barely moved.
As I have often stated, I might get worried about a short TLT trade if JGBs reverted to a deflationary/falling yield trend. But my reading is that Trump and his “beautiful” tariffs is going to force every government to spend and stimulate - that is be inflationary. The JGB market also does not tell you deflation is imminent. In fact, the huge rally in the last two days has almost totally reversed.
The good news is that this means I don’t think we are going to see a huge increase in unemployment, or deflation. The bad news is if you run a business and cost pressures have been hitting your bottom line - things are about to get much worse. And that is real meaning of the movement in equities and bonds - cost inflation is coming big time. Get ready for lower profits and corporate cashflow.
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