Everyone Hates Bonds and That Is Exactly Why They Matter Now

You may not like it, but there it is...

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.

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.

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.

Original Post