Narrative assessment on Fixed Income and Inflation regime per your survey responses. Thanks again for participating!

@MattGarrett3
09/21/16 Survey 1 results:
1) What was the biggest contributor to 30yr selloff? The trade got too crowded (35%)/Change in thinking on inflation (13%)

2) What will global yields do for the remainder of the 2016? Range bound (44%) / Begin to enter a bear market (18%)
Lets look at the crowded trade aspect:
a)

Return chasing with added

kicker of negative
correlation when you need
it - Total Return
comparison of CBoT UST
Bond contract vs S&P500
Total Return Index.

The above dynamic with a consensus

of persistent low levels of inflation
drove this trend and a buildup of
positions.
b)

Price sensitivity to change

in yield - CTD Forward
Risk/DV01 of CBoT 10yr,
30yr, and Ultra Bond
futures contract (2nd chart
middle pane).

As yields pushed lower, DVO1

increased, making any potential
unwind in fixed income more violent

10/13/2016 Survey 2 results:
1) What will be the biggest problem for central banks over
the next 12 months? Fiscal policy falls short on stimulus
As of 12/01/16 US 30yr yields and 5y5y forward inflation swaps are up (72bps
(31%)/An uptick in inflation expectations (10%)
and 51bps since the first survey, respectively) and (48bps and 32bps from the
11/22/2016 Survey 3 results:
election, respectively). As the last survey showed there has been a major shift
1) What was the top contributor to the post-election selloff
in attentions to fiscal stimulus induced inflation.
in bonds? Heightened inflation expectations via fiscal
expansionism (70%) / Risk of disruptions in global capital flows + Risk of trade related price shocks + Expectations of increased supply of
long duration papers = (26%)
Now is a good time to assess the narrative on inflation and yields going forward

Views on US fiscal expansion via tax cuts and increased expenditures on infrastructure were boosted by stated policy stances of PEOTUS
Trump. There is also great expectations that his agenda will meet little resistance given how effectively he pierces through any opposition
as was the case in the Republican primary. However, it will be the market (enter Bond Vigilantes) that has the final say.
The expected departure from the current regime of global trade and the US active role in securing that regime creates the real potential for
price shocks via trade disruptions (milder versions of the oil shock of the 1970s where OPEC pushed oil up >200% causing US CPI to
>10%. This is at a time when US imports have become a significant % of GDP and had provided a structural disinflationary pressure.
The other knock on risk as the US does less trade with foreign trading partners they will be less incented to hold US based assets and
particularly treasury or agency securities. Below is a heat map of recent changes in total trade and official UST holdings with major trading
partners of the US. Were likely to see a continuation of some recent selling of the large official holders of treasury securities.