Are we dealing with Bond Pain Trade 2.0?
Institutional investors have allegedly swapped their stocks for bonds again. The last time they did so, a violent bull market ensued. But fundamental support was much stronger back then.
Disclaimer: The information contained in this article is not and should not be construed as investment advice. This is my investing journey and I simply share what I do and why I do that for educational and entertainment purposes.
TLDR Summary
In 2022, investors started to build large positions in bonds because these started paying interest worth its name again and because they expected a recession triggered by the rate hikes. Betting against this long bonds crowd has made a lot of money for more than two years. Forcing them to chase stocks contributed greatly to the bull market, certainly more than many people realize.
The latest stock market sell-off has brought forward old habits. The Bank of America fund manager survey suggests that investors are once again selling stocks to buy bonds. This time they are concerned that a global trade war will bring the economy to its knees. This is a serious challenge to my overall bearish stance. Once again I have to ask myself: Can money be made by shorting bonds against stocks? The latest woes in the Treasury market seem to support that idea. But I believe there are strong arguments against putting a huge weight on this sentiment and positioning data right now.
Firstly, TLT, one of the largest long duration Treasury ETFs, has not received new love. Investors have started dumping their shares in August and they are still doing so.