Originally published October 24th 2022
Trade Rationale and Plan
• The US long bond has been crushed in the past 3 months. While we are not calling a definitive top in US Treasury yields, bonds have fallen too far too fast to our mind and some kind of retracement in price seems overdue
• The portfolio has plenty of longer-term energy and precious metals exposure that would benefit from lower long term interest rates (higher TLT) but we view this as having an attractive risk / reward profile for an incremental trading position for the portfolio
• This trade is reliant on precision in terms of both price and time to capture the maximum payoff (c.14.3x) and therefore should be viewed as speculative and sized appropriately.
• However, the trade has the potential for a flat to marginal P&L if TLT only manages to stabilise at current price levels (see trade construction below for P&L scenarios)
