The yield on 30-year US Treasury bonds initially rose after the Treasury's unexpected announcement of a buyback program, but subsequently gave back those gains. Wall Street remains skeptical of the buyback policy, as it cannot address fundamental issues such as the US fiscal situation and the imbalance between supply and demand for long-term Treasury bonds. This further reinforces the logic of the "currency devaluation trade," a view we have repeatedly expressed when discussing gold and gold mining stocks.
Meanwhile, overall bond positioning shows that investors are increasingly betting on a steepening yield curve; however, net bond positioning remains very low, both compared to the past 12 months and from a multi-year historical perspective. (The above views are from a JPMorgan report dated August 21.)
Note: 1. A currency devaluation trade refers to buying assets that can withstand devaluation, such as gold, out of fear that money is becoming increasingly worthless.
2. A steepening yield curve means that long-term bond yields rise more or fall less relative to short-term bond yields.
