A month ago, we wrote in Bessent’s Bond Market Band-Aid that we didn’t think his actions regarding larger buybacks in the long-end would materially prevent yields heading higher.
Even though our trade expression of this (long 2s30s) proved to be the wrong way to profit from his actions, todays announcement of $6bn for the operation scheduled tomorrow has proved to be brushed aside by markets, with the 30yr up 10bps on the day. Even though the 20yr is underperforming the 30yr, it’s still heading higher.
To us, it’s clear that the market is being overwhelmed by macro forces, including the PMI data out today. We therefore hold to our conviction from August but look to express it in a simpler way: targeting a move in the 30yr to 6% by year-end.