Trader’s Narrative

According to seasonality, we are coming into the time of the year when it has historically been a good time to be long bonds:

But seasonality isn’t everything. It is only one piece of the puzzle and even at that, it is anaverage of many years, smoothing out the year to year volatilities.

I disagree with it this year and don’t think right now is a good time to be long bonds. There are several reasons. For one, the sentiment regarding bonds isn’t gloomy enough. The AAII bond allocation is too high for my liking and the Consensus survey is showing way too many bulls (72%) compared to almost 25% last summer - when bonds finally got bids.

Also bond prices have simply come too far, too fast for me to realistically expect them to continue their pace. Looking at a 6+ historical chart, they have just descended from some very thin air territory. And with the exception of a short term buy signal in February (green arrow), they have a much higher chance of falling from here than rising.

That buy signal by the way, was a consequence of the stock market turmoil which caused people to take sell stocks and take ‘refuge’ in bonds.

The blue arrows mark the month of May in each year when bond seasonality turns positive.