The 10-year note yield is now down ~35 basis points in just 5 days
This is the biggest pullback in treasury yields since the October 6th high. Let's keep in mind that it is not only due to a shift in Fed expectations, but rather a shift in US Treasury borrowing. As the US Treasury ramps up issuances of short-term debt, long-dated bonds are falling. However, higher for longer Fed policy seems to be setting a floor on this pullback. Source: The Kobeissi Letter
The negative bonds world is gone, with also a Japanese bond maturing in 24 trading at 0% yesterday
Source: From Macro to Micro
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
