The bond market isn’t ready to concede that the economy is on a sustained upturn that will allow it to skirt a severe slowdown or even a recession. U.S. Treasuries followed most of the rest of the global government debt market higher Wednesday, providing a welcome respite from a sell-off that’s looking more like an adjustment of overextended positions than a referendum on faster growth.
Sure, some of the gains in the bond market may be related to doubts about the U.S. and China actually agreeing to the first phase of a trade deal after some downbeat comments by President Donald Trump on Tuesday and subsequent reports of a “snag” on Wednesday. But what hasn’t been discussed as much is evidence that the recent slump in bonds had much to do with the reversal of positions by general investors who bought government debt in August, September and early October as recession speculation peaked. That was borne out in the latest monthly survey of global fund managers by Bank of America released on Tuesday. It showed being long Treasuries is no longer the world’s “most crowded trade,” with 21% of respondents saying so, down from a massive 41% in October. The new “most crowded trade” is long U.S. technology and growth stocks at 39%. And with yields on benchmark 10-year Treasuries having risen from 1.43% in early September to 1.87% on Wednesday, there’s reason to believe that bonds are more fairly valued. In fact, the latest yield is higher than the 1.71% that economists expect it to be at the end of the year and the 1.78% they estimate at the end of the first quarter 2020, according to data compiled by Bloomberg.