David Hunter
Chief Macro Strategist at Contrarian Macro Advisors
Treasury yields are putting in a top, and bonds look to be at a major bottom. Deflation is coming, and investors are extrapolating rate momentum, adding two plus two and getting six; that move will likely reverse soon. The fear in questions about how high rates can go is typical of major bottoms. Equity markets are not close to signaling a reversal either. x.com x.comÂ
US Treasury yields should fall as inflation resumes trending lower, oil prices decline and the economy slows, with a $200 target on the 20+ year Treasury fund in 12-18 months. Bonds are making a double bottom with 2007. A weak economy, deflation and big money creation in the bust will drive the move later, not before: Powell and Warsh have both rejected returning to Fed bond buying, which would now lift inflation and rates. Most sovereign rates should fall, though not high-yield corporate rates. x.com x.com x.com x.com x.comÂ
Long-dated US Treasuries look favorable as the rise in 10-year yields appears mostly over; inflation searches have peaked, and only 13 of 29 tracked commodities are above their 50-day averages. x.com x.com x.comÂ
Long-dated US Treasuries benefit from falling long-end yields as the Fed's inflation response becomes a policy error. The Fed looks likely to hike again to defend its credibility despite a supply shock; 5% rates are unsustainable, and current price action points to financial damage followed by a hard pivot. A one-year rate freeze could instead let long yields rise by giving the economy a breather and making later hikes more likely. x.com x.com x.com x.comÂ
The secular rise in Treasury yields will likely last longer and go further than most expect, making bets on a yield low premature. Investors tried to time the low in yields from the early 2000s and were 20 years early. The most rate-sensitive sectors, homebuilders, mortgage names and private equity, where smart money would show up first if a turn were near, show no hint of accumulation. x.com x.comÂ
Long-dated Treasuries look set for a 20-50% move over a few months as bond prices sweep their lows, as they did in 2004 and 2018. That would mean a rate cut and falling long-term yields are closer than expected. A rate hike is almost certainly not coming, despite @CrazySmitty271's call for at least two imminent hikes; rates could hold for a few more months, but a hike would be destructive and unnecessary. Long bonds remain a contrarian trade. x.com x.comÂ
Falling Treasury yields reinforce the growth-scare thesis and mark a bullish turn for long-dated Treasuries. The 10-year yield is breaking below 5% as TLT rallies. x.comÂ
Inflation has broken long-dated US Treasuries' safe-haven role. Long-term Treasuries have returned -4.1% annually in the 2020s to date, versus +4.9% in the 1930s. Long bonds look unlikely to do well for at least the rest of this decade. x.com x.com x.com x.comÂ
Long-dated Treasuries could rally after a Fed hike, because a hike could lower or at least cap the 10-year yield more than any other intervention at this point. The 10-year yield bottomed near 3.66% when Powell started cutting in September 2024 and has not returned there since. @lord_fed's point that the long end may rally after the hike, having sold off through the 2024 cutting cycle, holds. x.com x.comÂ
Long-dated US Treasuries show textbook capitulation, suggesting the 10-year yield is near a temporary top. Long bonds have closed below the lower Bollinger band for five straight days on rising volume, with implied-volatility rank at an extreme, a sign of extremely crowded shorts. High rates do little to restrain highly profitable companies such as big tech and semiconductors. x.comÂ
Economic projections for falling inflation and rising unemployment leave December as the only window for another Fed hike, exposing long-dated Treasuries to more selling as yields rebound. Treasury buying has cooled yields ahead of the midterms, but yields should rise again with stocks and crypto through year-end. The subsequent liquidity shift should bring bearish volatility at first; then TLT should break above 81-82 as the Fed turns to cuts of at least 50 basis points by March 2027. x.comÂ
Long-term Treasury yields should correct lower because their surge to the highest since 2007 is largely driven by temporary geopolitical risk. Middle East tensions lifted oil, inflation expectations and even pricing of rate hikes, but such premiums tend to fade; once tensions cool, oil should retrace and inflation expectations ease. The bigger backdrop remains stagflationary, with sticky inflation, slowing growth, a labor market weakened by AI and a Fed trapped with few good options. x.comÂ
