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I have written a lot about the risk of a deflation shock over recent months (see 'Bonds Look Good As Deflation Scare Increasingly Likely'), and have been adding to bond positions following recent increases
TLT: A Deflationary Perfect Storm Is Brewing
Summary
- While we have already seen a collapse in yields across the curve over the past few days, bonds are still attractive in this climate as deflationary pressures mount.
- Money supply growth is in contraction and the Fed continued to shrink its balance sheet, while money demand is surging as investors run to safety amid increasing financial market risks.
- Together, these factors are weighing on commodity demand, with the commodity index now down 20% from its peak and suggesting a negative CPI print by mid-year.
- The iShares 20+ Year Treasury Bond ETF (TLT) is well placed to benefit as the Fed gets the green light to reverse its inflation fight.
I am a full-time investor and owner of Icon Economics - a macro research company focussed on providing contrarian investment ideas across FX, Equities, and Fixed Income based on Austrian economic theory. Formerly Head of Financial Markets at Fitch Solutions, I have 15 years of experience investing and analysing Asian and Global markets.
Analyst’s Disclosure:I/we have a beneficial long position in the shares of TLT either through stock ownership, options, or other derivatives. 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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