How to Hedge Against a Bond Market Crash Without Selling Your Stocks

AI-generated source summary

The analysis focuses on the 20-year Treasury ETF (TLT). The author highlights that TLT has seen significant inflows and its outstanding shares are at their highest level since late 2024. Despite this, the author argues that the overall market sentiment is not bearish on Treasuries. The reasoning provided is that the price of oil and diesel is bearish, the deficit is bearish, and the long-term trajectory on total debt is bearish. Furthermore, interest payments on debt are greater than discretionary spending, making the global supply of bonds bearish. The fact that countries like Saudi Arabia are buying Treasuries to fund their operations also contributes to a bearish outlook. Questions about the global reserve status of the dollar and its potential over-issuance are also noted. The author contrasts this with the view that the corporate supply of bonds, debt denominated in own currencies, etc., are preferred, and Fed assets are independent and not bearish. However, the author observes that the price action on TLT suggests a bearish sentiment, with inflows and share outstanding at an all-time high, yet the market is not reflecting this. The author opines that retail is acting early by buying the dip before the 'pros,' suggesting that while stop losses might be great for risk management, buying opportunities might be limited due to the current market narrative. The author's personal take is that this setup is not ideal, and the current price action of TLT, which is below its 5.3% closing yield from a prior low, indicates a bearish bias. The author suggests that a better scenario would have been a preferred entry at a lower rate of 6.5% for 3 years, converting to a stock at a premium, rather than the current situation.

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