Alpha Report: Inflation Risk and Positioning Signals

Bonds, Powell, and Tariff risk

Big Picture:

We are in a macro regime where significant divergences are taking place between major countries due to tariff risks and growth differentials. This is beginning to create a divergence between central banks, specifically between the Fed, the BoE, and the ECB. This has implications for inflation risk since CORE CPI in each country remains ABOVE central bank targets.

This week’s FOMC meeting further solidified what the long end of the curve has been telling us for over a month: the economy doesn’t need a dovish Fed. Notice that the Z5 SOFR contract is now BELOW 75bps and beginning to drift toward pricing 50bps. When we came into May, I laid out how the forward curve was mispriced and the NFP even was likely to function as a catalyst for selling. This has taken place and the next macro catalyst is the CPI print next week.

I laid out in yesterday’s video that a recession is not on the table right now. I wouldn’t want to be long the short end until we reprice to 50bps in Z5, reprice 2026, AND see a bit more steepening in 2s10s and 10s30s (more on this below). Why is this? Because we need to wash out any semblance that an imminent recession is taking place in Q2.

I want to lay this out further in this report.

An important reminder, there are now 7 days left to lock in the discounted price on the Substack before further price increases occur later this summer. The links for the discounts are in this article:

Divergences, Inflation, and Positioning: