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Is It Time To Fade The Deflation Trade?

Last month I wrote about the change in inflation sentiment that I am presently undergoing. For years I have been bullish on T-Bonds consistently rejecting any notion that high inflation was on the horizon, consistently saying that QE was not inflationary, saying that there was no risk of a solvency event in US government bonds, etc. But 2015 is the first year in a long time where I feel like the deflation/disinflation trade has been overdone. That is, the idea of a permanent lowflation appears to be fully expected and perhaps expected for much longer than is realistic.

My general thesis is that low inflation expectations are more than priced in now with break-evens in many countries pricing in 2-10 year deflation and that there is a high probability that these lowflation beliefs could end up looking wrong in the coming years. This doesn't mean that there is suddenly a… Read More …