Let me run a story by you. The dollar is rising against both its EM and DM counterparts, and U.S. equities— predominantly growth and tech—are gunning higher. By contrast, EU equities are lukewarm, and EMs are out-right struggling as balance-of-payment stress take down one domino after the other. In bonds, the U.S. front-end is held up by expectations that the Fed will keep trucking, while the belly and long end are edging sideways. In other words, the U.S. yield curve is, still, flattening. Finally, all measures of global macro-liquidity have rolled over; real M1 growth is falling, and CB balance sheet expansion is kicking into reverse.

To boot, most other leading indices also are exhibiting weakness. If this doesn’t sound familiar, it means that you have been living under a rock this year.

I have been recounting this story for several months, and I am getting tired of it. But we haven’t yet had the grand finale so it’s probably too early to abandon it, as much as I would like to.

In summary, I think we are due a fall in U.S. bond yields, potentially in both the 2y and 10y but almost certainly in the latter. I reckon that this happens alongside, or right after, a final moonshot in the dollar. It should be a cathartic moment for markets, setting the stage for a different story.


U.S. 10-year yields are up about 70 basis points on an annual basis, and I understand the case for further upside. The combination of Mr. Trump’s recklessly loose fiscal policy and a late-cycle economy coupled with tariffs on imported goods are a recipe for inflation. In addition, the Fed has begun to roll off its balance sheet, and the pace of QE in the euro area and Japan is dwindling.

This is a decent story, but the up-trend in long-term yields have stalled this year; yields have been in a tight range since February and have generally struggled to push above 3%. This is consistent with market-pricing, and the Fed’s dots, indicating that the terminal rate is somewhere in this region.

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