Long bonds offer attractive real yields
The bull case presented for long-dated US Treasuries is that they offer attractive real yields while serving as a hedge against underpriced recession risks.
The argument
The guest argued that a 5% nominal and 2.7% real yield on the long bond provides a solid cushion. Furthermore, weakening labor markets and contracting real wages are expected to trigger demand destruction, leading to lower inflation and a potential recession.
The thesis, stress-tested
✓ What validates it
- ✓Contraction in real consumer spending
- ✓Non-farm payrolls or household surveys showing sustained employment weakness
- ✓CPI dropping faster than consensus expectations
▸ Risks discussed
- ▸Continued high government deficits and debt issuance could pressure bond prices
- ▸Persistent structural inflation could erode real yields
AFFILIATE LINK · ZORTIX MAY EARN A COMMISSION · NEVER A RECOMMENDATION TO TRADE