After rallying by ~3.6% between mid-February and the start of March (& pushing above their 200-day moving average), bond prices have begun to lose momentum. Yields, in other words, have stalled (fig 1) — and bonds are now close to overbought levels (see fig 1a). When we moved Tactically LONG bonds on 15th January, the 10-year yield stood at 4.7%; it currently sits at 4.2%.
The key question, therefore, is: How much more is left in this rally?
From a macro perspective, the answer is “probably a lot more.” As highlighted in our latest quarterly research (“Navigating The Policy Flip”), i) tighter fiscal policy and tariffs are exposing the ‘soft underbelly of US growth’. Historically, once the Fed shifts away from its inflation focus (& towards supporting growth), yields tend to move lower — favouring ongoing strength in bond prices. In addition, ii) sentiment remains mid-range while positioning is still net SHORT (fig 1b) – which suggests there’s still plenty of fuel for a short covering rally.
All in all, therefore, while the near-term picture suggests some caution (with bond prices currently overbought), the broader macro and positioning backdrop still points to the potential for further upside, especially if incoming data reinforces the mid-cycle slowdown narrative. This week’s labour market & ISM data, coupled with the April 2nd tariffs announcements, will be particularly interesting in that respect.
Fig 1: US 10 year government bond yields shown with 50 & 200-day moving averages
Fig 1a: Medium term RSI (US bond futures) vs. bond futures prices
Fig 1b: US 10 year bonds net speculative positions vs. US Treasury 10 year bond yields (inverted)
