TLT rocket ready for Powell's launch sequenceWhile the bond market blood bath may scare some, I believe it is an opportunity to catch a fly with chopsticks Mr. Miagi style.
The narrative that bonds are selling off because of inflation fears is oversold hype and Guggenheim's CIO Scott Minerd and PIMCO's head of short-term management Jerome Schnieder agree.
www.guggenheiminvestments.com
www.youtube.com
Inflation is transient and with a liquidity supernova descending upon the markets, this will push short-term rates down leaving fixed-income investors chasing long-term (duration) bonds. The Fed itself will likely introduce some type of Twist style program expanding purchases of duration bonds. Add in the upcoming SLR exemption expiration and the historical long-term trend in the decline in the US10Y and the case for lower rates becomes very sexy.
Yellen is going to be dumping $1.1T into money markets.
www.bloomberg.com
SLR exclusion exemption may not be extended. Democrats are demanding higher banking restrictions. No SLR extension creates a bottleneck for O/N repos and warehousing.
www.ft.com
There is also a strong technical case as it is oversold and we've had a very bullish engulfing reversal candle. This looks primed to explode any day now. Additionally, the US10Y looks overbought with the classic evening star doji.
Minerd believes rates US10Y will hit -.5% by 2022. While I think that is a little on the extreme end of the range, I do believe 1.15% to 1.25% in the near term is realistic with .5%.
Disclaimer: At the time of writing I do hold longer-dated expiry ITM TLT calls.
