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“There is a disconnect between the Trump stimulus execution risk and how far we’ve come in terms of expectations. An actual fiscal boost is more than 12 months away in reality, Obamacare took well over 300 days to land on the President’s desk while the Dems controlled the House, Senate and the White House. As much as well all want to believe Mr. Gridlock is dead, he’s still breathing. As we head into 2017, gold miners, bonds, gold miners and utilities continue to be our favorite options as the street has unanimously bought into the “reflationary trade” narrative.”
The Bear Traps Report, January 5, 2017
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Treasury Bond Gurus Blindsided Again as Reflation Trade Falters
Ten-year yield forecasts are off by the most since September.
Guggenheim’s Minerd sees rising odds of 10-year yields at 1.5%.
“In recent years, the overwhelming problem with bond market prognostications from U.S. economists is they’re far to wedded to their craft. Bond prices are manufactured by political risk and global systemic risk, substantially more so than economic data. We have a whole army of economists with their eyes on the wrong ball.”
The Bear Traps Report’s Larry McDonald, April 25, 2017
It’s never been easy being a bond-market prognosticator. But while history is strewn with botched calls and embarrassing revisions, 2017 is shaping up to be Not only is there the Federal Reserve to worry about, but also a new U.S. administration struggling to enact its pro-growth policies and geopolitical risks from elections across Europe to saber rattling in North Korea.
Perhaps that’s why on Wall Street, consensus estimates for the direction of Treasuries are proving to be so off the mark.
Strategists and economists were blindsided by the five-week rally in Treasuries, which left the gap between their forecasts
for the end of June and the actual 10-year yield at the widest since September. In theory, they’d converge as the date draws
To some, the disparity reflects a growing sense that traders in the Treasury market are giving up, at least for now, on the so-called reflation trade that was all the rage in the wake of Donald Trump’s election victory in November. “I don’t know that the words ‘confident’ and ‘yield forecasts’ belong in the same sentence,” said Richard Moody, chief economist at Regions Financial. “Our forecasts have been based on where the market was, which is how you have to do it, but we’ve been saying since the day after the election that people need to slow down in terms of what they’re expecting.”
Moody, who called for the 10-year yield to end the quarter at 2.71 percent in March, dropped his forecast to 2.46 percent on April 13.