Bonds Are Still Not Cheap – June 13, 2022

Last week’s MRB Absolute Return Strategy: Realigning The Cycle” updated our positioning in view of the rapidly evolving macro backdrop, especially with regards to the inflation outlook. After being benign for most of the past 40 years, rising inflation has taken hold in much of the developed world, and policymakers have been very slow to acknowledge this change, and even slower to respond.

Although bond yields have surged this year and the bond market is getting quite oversold, our valuation model warns that G7 bond yields are still below fair value. Ominously, after a 40-year downtrend, our measure of fair value is now heading higher.

Net: we remain bearish on bonds, and risk asset markets will struggle until the bond market calms. Stay tuned.


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