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Deep Turning's avatar

The right time to have gotten short US long bonds was spring 2020. That correction ended a couple months ago, after hitting the bottom of the 40-year-long upward channel and other very clear technical signs. The price is moving up and probably will complete some upward retracement in the coming months, with long rates falling. The 10-year rate is still rising, but hasn't got much further to go. The whole yield curve is going to fall by the end of the year. I'm doubtful whether the Fed will go much further in raising short-term rates, if at all, for the rest of 2022.

I'm completely agnostic about whether that long bond bull market is truly over. A clear sign would be a decisive breaking of that long upward channel.

As for a recession, that was always dubious. In the US (not the Eurodollar), there was no recent USD yield curve inversion, employment growth in the US has been stellar in recent months, and there are few signs (outside of housing) of any inventory build-up. That does not sound recessionary.

I suspect what happened in Q1 was that the nominal growth and inflation rate were estimated pretty well, indicating negative real growth (nominal - inflation). But the Q2 inflation rate was certainly overestimated. It's come off a lot since May. Thus real growth was not so negative and was probably slightly positive.

We're not at all out of the woods, however. The USD will turn down at some point in the next few months, after a big historic peak, and commodity prices will explode.

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