Long US 5s30 Yield Curve

16 Jan 2023

The US Government Treasury 5Y vs the US Government Treasury 30Y is now back above inverted levels and will continue this path as the FOMC hawkish rhetoric and major policy error will drive the US into a recession this year. It is in our opinion that this trade will move from inversion to +100bp as the FOMC pivots, equity markets falter and the FOMC stops their QT and stops Mortgage Back Securities and US Treasury roll offs. In a fiat fractional reserve system the current set up requires continued fiat printing or QE in order to keep asset prices higher. Also inflation is transitory and stemmed from the fiscal direct payment stimulus post Covid. We will see wage pressure come down, debt service go up and a tighter economic environment. All of this is telegraphed already in leading economic indicators. We believe this trade has a better than 5 to 1 payoff structure, risking -25bp to make 125bp.


PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS- Trading is risky and may involve leverage, Magnelibra or any of its affiliates are not suggesting in any way to guarantee any profits or against any future losses. Trading should be done by well capitalized and individuals well versed in quantifying risk.