What's Driving the Bond Term Premium

  • Term premiums help us measure the effect of macro factors on yields. Most risks (inflation, growth, demand-supply) are likely already factored into the term premium.
  • We're concerned about underlying stress in US banks, as indicated by widening Bank CDS and increased mentions of rate hedges in 3Q23 earnings. 
  • 30-year bonds are conforming to another tactical LPPL crash pattern once again, currently projected to hit a climax on October 31st.
  • We're bullish on US TIPS. We are in the era of political management of the economy and we believe the US government won't allow high real yields. Expect the Treasury and the Fed to collaborate on managing borrowing costs, similar to the 1942-1951 period.
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