Frank Pliete of Citadel Securities warns that crowded bearish bets on long-dated U.S. Treasuries may lead to a price rebound.
Frank Pliete, head of macro strategy at Citadel Securities, warned that the current market position for long-dated U.S. Treasuries is increasingly crowded. He noted that because bearish bets are so stretched relative to historical norms, any shift in direction could force a painful unwind of positions. This reversal in outlook follows a period of which long-dated yields were pressured by inflation concerns and heavy bond issuance from technology companies. However, Pliete cited weaker-than-expected employment and inflation data as reasons for his new bullish outlook. These figures suggest a more accommodative response from the Federal Reserve. Pliete also noted that trend-following strategies, such as commodity trading advisers, are especially vulnerable to a10-30 year maturity buybacks. He highlighted that in 71% of cases where growth and monetary-policy signals resembled current conditions since 2003, Treasury yields fell over the following 120 days. This shift suggests that a rally in bond prices could occur as investors seek to cover short positions.