Is this the most hated asset class?
The composite positioning indicator below seems to suggests so.
Everyone hates bonds right now.
And fair enough — there are several obvious reasons to hate them.
Returns have been terrible, inflation risk is lurking around the corner, fiscal concerns are running high, and political/governance risk for the US is looking and feeling more like what you’d expect in emerging markets.
But all of this is obvious and well known, which means it’s time to think.
As the old Mark Twain quote goes, "Whenever you find yourself on the side of the majority, it is time to pause and reflect."
When you take an objective and quantitative look at treasuries (I am referring to longer-term) a couple of things stand out.
Valuations are cheap.
Sentiment/allocations/positioning are deeply consensus bearish.
And support seems to be holding…
To be fair, there are several key and credible risks to treasuries e.g. if we see stronger growth and commodity prices this year (my base case) that’s going to be a headwind for fixed income as bond yields would see upward pressure in that scenario.
But if we see recession and deflation, or just growth scare, or even stock bear — or perhaps a pivot in policy by the Fed to more aggressively lean on mortgage rates by bringing short-term rates down and maybe even leaning on long-term bond yields…. those are a couple of pathways to better returns from the unloved undervalued and underestimated treasuries bucket in fixed income.
Key point: US Treasuries are unloved and undervalued.
Further Macro-Market Insights
Here’s a few recent charts from my free “Off-Topic ChartStorm“ series, be sure to check out the original posts for full context and conclusions (+more charts!).
Off-Topic ChartStorm - US Treasuries
“Overall, it’s clear the bond bear market has laid lasting damage to sentiment on bonds. Arguably this has helped created a bullish contrarian setup in waiting. But historical and global perspective suggests some caution, and we await price and macro confirmation as upside catalysts for the bond bull breakout…“ [Full Story + Charts]
As touched on above, we’ve just been through (and technically still are in) one of the worst bond bear markets in recorded history. This is highly important because some of the best opportunities come from the biggest bear markets.
Fixed Income markets in Focus
There’s several key trends, themes, and issues for asset allocators to be considering on the fixed income front (e.g. Japan, credit spreads, volatility, risk, and expected returns), this free report elucidates things with clear commentary and charts. [Full Story + Charts]
But specifically, the chart below lays out how the continued drift higher in the long-term rate of inflation in the USA might make it hard for treasuries to sustainably rally in lieu of a deflationary downturn or crisis/shock. Higher-for-longer risk is non-trivial, especially given the next chart…
Bullish Commodities Outlook
There’s growing evidence for a new cyclical bull market in commodities (following a cyclical bear market from 2022-24). This is likely to become a major macro theme in 2026 (not to mention a very interesting opportunity for investment in both commodity related stocks + commodity prices themselves). [Full Story + Charts]
One issue with this though in relation to today’s chart — higher commodity prices and stronger growth = higher inflation = higher-for-longer risk lingers for longer… so it does complicate the outlook for bonds.
n.b. If you haven’t yet, be sure to subscribe to the [free] Chart Of The Week series or better yet: Upgrade to Paid for Premium macro-market Content.
Topics covered in our latest Weekly Insights Report
Aside from the chart above, we looked at several other charts, and dug into some intriguing global macro & asset allocation issues in our latest entry-level service weekly report:
Market Themes: commodities, EMFX, and LatAm equities turning up
Treasuries: examining the bull case and matters of timing
Inflation Risk: charts and thoughts on inflation risk prospects
Stocks vs Bonds: weighing the strategic probabilities vs tactical aspects
Oil/Energy Stocks: upsides vs downsides, emerging opportunity
Japan Equities: comprehensive look at the bull case in Japan
Subscribe now to get instant access to the report so you can check out the details around these themes + gain access to the full archive of reports + flow of ideas.
For more details on the service check out the following resources:
Getting Started (how to make the most of your subscription)
Reviews (what paid subscribers say about the service)
About (key features and benefits of the service)
But if you have any other questions definitely get in touch.
Thanks for your interest. Feedback and thoughts welcome.
Sincerely,
Callum Thomas
Head of Research and Founder at Topdown Charts
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