We published a tectically bearish view on US bonds today on Seeking Alpha. Below are some excerpts:
- With the short-term downtrend giving way in recent trading, 10-year yields look set to once again recouple with their fundamental drivers and head higher.
- The rise in Swiss and Japanese yields to multi-month highs could be a canary in the coalmine suggesting higher global yields.
- Fundamentally the high degree of foreign ownership suggests that the Fed will not have the same success as the BoJ has in pinning bond yield down.
“U.S. 10-year bond yields are facing upside risks as global risk aversion fades and inflation expectations rise. Several developed market bond yields have posted higher lows in recent weeks and the U.S. looks set to do the same. Fundamentally, we see strong arguments on both the bullish and the bullish side but see the bearish case as more compelling given the high degree of foreign ownership. We hold a tactical short position on the IEF – iShares 7-10 Year Treasury Bond ETF.”
“U.S. 10-year yields hit all-time lows on March 9 in response to the collapse in oil and equity prices, which saw inflation expectations collapse supporting bond prices. However, yields failed to follow the path of oil, stocks, and breakevens to lower lows over the following week. Since then we have seen a recovery in risk appetite which has lifted oil, stocks, and breakevens but bond yields have remained near their lows. With the short-term downtrend giving way in recent trading, 10-year yields look set to once again recouple with their fundamental drivers and head higher.”