As the hosts point out, the best time to buy bonds is when yields are high and inflation is peaking. The higher yield offers a margin for error even if it takes time for the macro details to work themselves out.
Every time the yield curve becomes inverted we have a variation on the argument that it is no longer relevant. This time, the argument is that the battle against inflation is essential and central banks will quickly cut rates back to zero at the first serious sign of stress so a recession will be avoided.
Alternatively, the argument is a soft landing is assured because the exogenous factors that inflated asset prices during the pandemic will roll off without a meaningful hit to earnings or employment. I am in full agreement with Gundlach on this one, it is Pollyannish to an extreme.
I do think inflation will retreat. I do not believe it will be a pleasant experience. House prices have peaked and affordability is at least as bad as it was in 2006. Used car prices have rolled over and Carvana is accelerating lower. Consumer credit is at new all-time highs and all of this happening against a background where liquidity is tightening at the fastest pace in years.
Moreover, the leading sector which dominated the stock market for the last decade is completing a relative top formation. This is a recipe for Treasury yields at the long to compress. However, a sustained move below 4% would be required to begin to signal a change of trend.Back to top