Why Isn't the Bond Market Wearing a Mask?

The Nasdaq is essentially at all-time highs, as various marquee names like AAPL AMZN MSFT continue to comfortably trade well over $1 trillion in market cap. Furthermore, our monetary and fiscal responses to the pandemic have been as stimulative as likely any response we would have seen throughout American history, if not more. Beyond that, the U.S. Dollar suddenly went bid-less this week as precious metals lurched higher in kind. This is all happening as professional sports carefully re-open alongside major economic hubs like New York City. 

Hence, one would think that inflation, or at least reflation (to put things into a rather Goldilocks, rose-colored view) would be the theme with Treasuries, too.

Instead, we have those nitty bond traders pushing TLT higher, as the monthly chart, below, sports an explosive-looking high/tight bull flag breakout in July. Recall that Treasury prices trade inversely to yields (higher demand for Treasury bonds = higher price = lower yield or interest rates). 

So the bond market is not sold on the notion of a vigorous recovery, let alone inflation, just yet. Is a deflationary event still a viable risk? The Dollar seems to suggest no, especially with its swoon this week, while gold is capable of performing reasonably well in both inflation and deflationary environs. 

It is often said that the most rigorous, intelligent traders are found in the fixed income asset class, with equities amounting to the bratty, spoiled little brother. That axiom will certainly be put to the test this cycle, as Treasuries are not yet complying with The Fed's implicit edict that everything "return to normal."