Alpha #5: Long Bonds (TLT)
What Goes Down Must Come Up
Joseph Wang is a seasoned macro analyst who was previously a senior bond trader at the Federal Reserve. Luckily for us, Joseph does weekly market updates where he not only explains macro data in a way anyone can understand, but also reveals how he is personally positioned given said macro data. In his most recent update, Joseph revealed he had allocated to one of the most hated assets: long duration US bonds.
For context, long duration US bonds (or just long bonds) had been in a structural (long term) bull market since the 1980s when interest rates started trending gradually lower. The consensus is that this bull market ended in 2022 when the Fed started raising interest rates again. This is not surprising given that popular measures of long bonds like the iShares 20+ Year Treasury Bond ETF (TLT) are down over 40% since 2022.
The thing is that even if long bonds have entered a new structural bear market, it doesn’t mean that their prices will keep going down only, just like how long bonds didn’t go up only during their structural bull market. In plain English, there will be periods when long bonds rally a lot. These rallies are likely to be large given that long bonds are in fact arguably in a structural bear market (bear market rallies are very big).
This is basically what Joseph is betting on. Specifically, Joseph is betting that long bonds will rally when the AI bubble inevitably bursts. This is because long bonds performed well when the Dot Com Bubble burst, and were the safer alternative to shorting tech stocks at the time. Based on Connection Capital’s analysis, the TLT could rally by 20-30, possibly even 40% in the next 12-18 months (to around 115).
Note that Connection Capital does not have any allocation to US bonds at this time.
Disclaimer
The information provided in this article is for informational purposes only and should not be construed as financial, legal, or tax advice. The views expressed herein are solely the opinions of the author, who is not a licensed financial advisor or registered investment advisor.
Speculating in stocks and/or cryptocurrencies involves a significant risk of loss. The author does not guarantee any specific results or outcomes. Readers should conduct their own research or consult with a professional before making any investment decisions.