The “easy money has already been made in bonds,” one mainstream financial media headline published over the weekend declared.

I don’t necessarily disagree. The extreme selloff in US Treasurys that pushed yields to cycle highs in late October was indeed “easy” to fade. The move was plainly overdone. The about-face, while predictable, was quite dramatic. It’d hardly be surprising if the rally stalled. Indeed, it already has.

The figure below, updated through January 19, is always worth highlighting. It shows the 2023 roller coaster for Treasurys which, in October, seemed destined to notch an unprecedented third consecutive annual decline.

Instead, bonds rallied sharply into year-end, thanks to a duration-bullish quarterly refunding (i.e., smaller-than-expected coupon increases), a run of soft(er) data and, of course, the Fed’s dovish pivot.

What now? Well, that’s the $26 trillion question: What’s next for the largest, deepest market on the planet?

Much depends on the next refunding announcement. The QT taper matters quite a bit too. Of course, the evolution of the macro-policy conjuncture is pivotal, and if you have a definitive hot take on that (an “edge,” so to speak) everyone’s all ears.

In the meantime, as we fumble mostly blind down a road to no one knows quite where, fund managers are less convinced that long-end yields will be lower going forward.

The Bloomberg article mentioned here at the outset cited the January vintage of BofA’s monthly survey, which showed investors “turned slightly less bullish” on bonds in the wake of the huge year-end rally.

55% expect lower bond yields over the next 12 months, the poll results showed. That was down from a record 62% in December.

Although the same survey suggested investors have largely written off a recession, cash allocations among fund managers nevertheless rose this month.

Apparently, some investors rotated out of bonds and back into cash. And why not if you think the rally is over? Cash yields more.

“Respondents are very optimistic on rate cuts and a macro soft landing, but January cash levels are up from 4.5% to 4.8% as bond market optimism tempered,” BofA’s Michael Hartnett said.

He described the drop in investors’ bond allocation as a veritable “collapse” — to 3% overweight from 20%. The month-to-month increase in cash allocations was 13ppt.