Frank Flett, head of macro strategy at Citadel Securities, says the risk-reward
has shifted toward a rally in long-dated U.S. Treasuries, citing crowded short
positions and improving inflation prints. He had warned last month that
investors were underestimating the risk of a Fed July rate hike. Citadel’s
simulations of CTAs and trend-followers show short positions are “substantially
excessive” versus recent history, suggesting further declines would likely
produce limited selling while sustained gains could force short covering. Flett
says concerns about Fed credibility are overstated because recent soft jobs and
inflation reports “appear to justify a more dovish policy response.”
