While there are reasons to turn tactically bullish on long dated US Treasuries ->
Let's not forget that Treasury supply (at the time of QT and waning demand stemming from China, Saudi and the likes) remains a headwind for the bond market
The US Bond Market has now been in a drawdown for 39 months, by far the longest bond bear market in history
Source: Charlie Bilello
Marketable US Treasury Debt to Explode by $2.85 Trillion in the 10 Months from End of Debt Ceiling to March 31, 2024
In total, over those two quarters marketable debt will have increased by $1.59 trillion! This follows the $1.01 billion increase in Q3, and the surge in June after the debt ceiling ended. At the beginning of Q4, marketable debt outstanding was $26.04 trillion. The government will add $1.59 trillion to it, pushing it to $27.6 trillion by March 31, 2024. Source: Wolfstreet, WallStreetSilver
The US treasury curve is going in all directions
Interest rate futures are beginning to price-in a potential rate CUT this week, at a 5% chance. Meanwhile, the base case still shows rate cuts beginning in June 2024. However, odds of another HIKE in January 2024 are now up to ~36%... Source: The Kobeissi Letter
With the US 10-year yield close to 5%, long duration bonds start to look attractive
There is one issue though: sentiment on long-dated bonds look too optimistic E.g 1/ not a single sell-side analyst does have a 10-year target yield above 5% for the next 6 months; 2/ Long-dated bonds funds are enjoying record inflows; 3/ Magazine cover pages look upbeat on bonds (source: J-C Parets). The consensus is not always wrong but so much optimism is usually not a good sign from a contrarian perspective.
The Greatest Treasury Bear Market in History
Source: BofA, Barchart
Adding to that Great Rotation theme is this chart
US households account for 73% of Treasury bond buying in 2022-2023 (so far) A lot of pain being experienced for those not willing to hold to maturity amid this bond blood bath... Source: Markets & Mayhem, Goldman Sachs
How long does it take for the FED to break the corporate bond market?
2008 : 1 year of plateau, resulted in credit event after another 1 full year. (Total 2 years) 2020 : 7 months of plateau, resulted in credit event after 6 months. (Total 13 months, 54% of 2008) 2023 : it's been 3 months into plateau so far. Chart made from MacroMicroMe - source: James Choi
