What if JPOW lost control of the long-end?

A 🐿️ insurance policy in the event that the long bond is not the perfect recession hedge for investors.

Midjourney imagines Jerome Powell contemplating the un-anchoring of the long-end of the UST yield curve

Summary

• The conventional recession playbook for investors is to buy the long bond. What if that does not work this time?

• What if the market response to a recommencement of rate cuts by the Fed is a “buyers strike” induced RISE in long end treasury yields?

• This has not happened before. Therefore it is very hard to make this a ‘base case’ view. However, the 🐿️ is always attracted to expressing views on outcomes which we think that the market is potentially under-pricing.

• We have bought a $110/$100 (2x1) put ratio backspread on TLT, the iShares 20+ Year Treasury ETF. This is not for all tastes, so we also discuss Harley Bassman’s PFIX as a simpler alternative.

What if the standard recession playbook is wrong?

We are not big believers in ‘soft landing’ or ‘no landing’ economic scenarios for the US economy. Yes, Chase

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