Trades: TLT short and CPI analysis

The next step for rates

Hello everyone,

I have laid out my view on interest rates consistently in the macro report (link), week ahead (link) and chat (link).

With the response from CPI and pricing on the forward curve, we have limited upside in ZT, ZN, and UB (interest rate futures).

We are likely to see a marginal repricing of the long end here. At the very least we are unlikely to make new highs above 135 BEFORE FOMC. Here is the risk reward for UB moving into FOMC (the same can be applied to TLT 0.00%↑ ):

This is a short-term view because I have laid out in the macro report and interest rate reports that bonds are skewed to the upside on a cyclical basis. While we have the direction of interest rates right, the forward curve has priced the SPEED too aggressively.

IMPORTANT QUALIFICATION: The main trade moving into the end of the year will be timing the bond LONG. You don’t want to get too caught up in the move down into FOMC. I am sharing the risk-reward and view because it will contextualize the bond long for the uninversion in Q4 this year (this will be laid out in full for paid subscribers).

As I noted in the macro report (link), a recession is unlikely as we move into the end of 2024. This is purely goldilocks.

On CPI, notice that services continued it’s deceleration with goods showing additional deceleration as well.

Growth remains resilient even though the unemployment rate ticked up marginally:

Be ready for the next move

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