TBX - Now Is Not The Time To Buy Bonds
2024-04-04 08:45:00 ET
Summary
- The fundamental outlook for bonds remains questionable at best.
- The leading indicators of growth and inflation for 2024 suggest both dynamics could put upside pressure on yields.
- Sentiment toward bonds remains bullish as the consensus is for yields to move lower. However, given hedge funds and CTAs are short bond futures, there is scope for a squeeze higher, but it will likely prove temporary.
- For a significant rally in long-duration bonds to occur, we need to see a deep recession (which will likely be driven by a material rise in unemployment), a stock market crash or strong disinflationary push in 2024 (unlikely to occur without a recession).
- Now is not the time to be piling into long-duration bonds, particularly when short-term fixed interest securities are offering more attractive yields without any duration risk.
Growth and inflation are not supportive of bonds
On both a secular and cyclical basis, I am a bond bear. I last wrote about bonds in September, laying out why I believe bonds represent a poor risk-reward investment in almost all time frames. Yields are flat to slightly higher since I penned this piece, and unsurprisingly, my view has changed little.
From a growth and inflation perspective, now is not the time to be overweight duration. As we can see below, growth surprises and inflation surprises continue to be positive, as has been the case for the past few months. These are not conditions supportive of a meaningful rally in bonds....
Now Is Not The Time To Buy Bonds