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Sri-Kumar: Where The 10-Year Treasury Is Headed Next

by: Real Vision
Real Vision
Long/short equity, long-term horizon, short-term horizon, newsletter provider

Slow growth, disinflation, and the trade war are the dominant factors for the 10-year Treasury over the next year or so, says Komal Sri-Kumar of Sri-Kumar Global strategies.

Sri-Kumar said the steepening of the yield curve does not mean that a recession has been averted. Historically, the yield curve becomes positive and steepens ahead of a recession.

He said any short-term back up in yields should be viewed as a buying opportunity.

With neither inflation nor growth picking up, the trade war is the dominant factor for the 10-year Treasury over the next year or so, Komal Sri-Kumar of Sri-Kumar Global strategies told Real Vision’s Trade Ideas.

He expects inflation to remain dormant and said that any short term back up in yields – if it goes to 2% – should be viewed as a buying opportunity.

“If it goes over 2%, I think it's not going to stay there. There are not forces making it go up. If it's 2 or 2.05, you will be better off buying it and enjoying the gain you get as the yield comes down again,” he said.

Contrary to what many people think, the recent steepening of the yield curve does not mean that recession risk has been averted. Sri-Kumar said that historically, the yield curve becomes positive and steepens ahead of a recession.

“Whether there is one more inversion or not, I think the recession signal took place earlier this year,” he said. “Seven months, eight months from now I think recessionary signs will be more obvious.”

The Trade

Komal is bullish on bonds. He recommends buying the US 10-year treasury note at current levels, with a target of 1.50% and a stop-loss of 2.20% over the next 6-12 months.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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