- The market's buy-in to the Fed's "transitory inflation" narrative, which was discussed extensively in the post;
- Excessively short positioning by bond market investors, as shown by a JPMorgan Treasury client survey indicating that respondents were highly short duration, or price sensitivity to yield changes; and
- A FOMO stampede by corporate defined-benefit pension plans. A recent study showed that pension plans were nearly fully funded from an actuarial viewpoint. Falling rates would raise the value of liabilities, and without asset-liability matching, pension plans were at risk of widening their funding gap.
In short, the bond market rally is a tactical counter-trend rally. The combination of expansive fiscal and monetary policy will eventually put upward pressure on inflation and bond yields.
That said, there are a number of pockets of uncorrelated opportunities for investors, regardless of how long Treasury yields stay down.
The full post can be found here.
