1. 10y UST - Being Early the Same as Being Wrong 

Qi’s model for 10y US Treasuries stands out for a few reasons: 

Model confidence was high for a long time until Trump stepped up his attacks on the Fed & the BLS over the summer. 

Macro model fair value has been falling for months but momentum is showing tentative signs of stalling.
Why?
The main driver explaining that is the bounce in economic growth. Q4’24 US GDP was tracking at 1.4% two weeks ago. That’s now 2.1% courtesy of strong prints from PMIs & regional Fed surveys. 

Low model confidence precludes a signal, but the Valuation Gap is now 1 sigma (17bp). USTs have benefitted from their role as a recession hedge amidst fears of the government shutdown. 

At these levels, bond bulls need to see individual company lay offs transition from idiosyncratic anecdotes into weaker aggregate data. Otherwise, there’s a danger the mean reversion follows the recent pattern of closing via UST yields moving higher.

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