The Pain Trade in Rates is Still Higher

Here at Market Chess we tend to follow-up on our bad calls, updating them and keeping readers and Members apprised. Because of that, there is a tendency for some to focus on those bad calls, as opposed to others who either conveniently ignore them or pretend that they are always winning instead. 

The reason why I raise that issue is because one of our better calls is that we have been consistently bearish on bonds (and therefore bullish on higher rates) for many years now, which at various times has been as contrarian as it gets. This has all happened as many, many folks were pounding the table bullish on bonds, and therefore bearish on rates. 

But the trend since the pandemic, and especially 2021, has been clear: Treasuries are mired in a long-term bear market with rates on the upswing. 

Not only have bond bulls buried their head in the sands, which is not too surprising, about this fact.

But, much to my surprise, markets at-large have as well, at least so far. 

Indeed, sticky high inflation and higher rates is something The Fed, Treasury, and markets themselves have continued to resist as facts. At any moment, we continue to be told that inflation will simply disintegrate without much of a cost at all. 

As you might imagine, I find that pie-in-the-sky thinking. Historic federal spending, and a QT taper, alone, are probably inflationary enough to send rates higher, or at least keep them from crashing barring a depression. 

 The latest rally in TLT, ETF for Treasury prices (below on the daily chart, inverse to rates), smacks of a bear market rally and nothing more, a lower swing high which is gapping down hard this morning which renders the rally far more bark than bite. 

The pain trade in TLT is lower, which means the pain trade in rates is higher yet.