Bonds are — self-evidently — among the best hedges for an economic hard landing, but with yields down ~70bps in four months, it’s worth asking if the rally’s gone too far, too fast.

This time last year, the US long-end was taking a break from a rout that’d eventually push yields to 5%. That episode — precipitated by oversupply concerns, high-profile short calls and, of course, the Fitch downgrade — was arrested in early November, when Janet Yellen effectively called time on the selloff.

As the figure below shows, the most recent long-end rally is the most pronounced since the late-2023 recovery.

30-year yields headed into September at 4.15%. They were 4.80% at the YTD highs and nearly sported a three-handle early last month, when the US rates complex repriced dramatically to reflect suddenly higher perceived odds of a recession.

If you ask BofA — whose Michael Hartnett has repeatedly touted the long bond as a hard landing hedge par excellence — the rally may be “set for quick reversal,” having overshot.

The bank cited seasonality, and specifically September’s always-heavy corporate slate, as well as ongoing upward risks to energy prices from never-ending geopolitical rancor (read: wars, cold and hot) and positioning, with bonds perhaps overbought by now.

Moreover, BofA suggested the market’s ahead of itself on Fed easing.

The figure above’s just another visualization of traders’ implied outlook for the Fed funds trajectory. It shows end-August pricing was among the most dovish of 2024.

In a note, BofA called that an example of “extreme Fed front-running.” “Fed hopes are now as bullish as it gets despite a V-shaped recovery in risk assets,” the bank said.

That’s another way of expressing the sentiments I voiced in the latest Weekly. Even as equity volatility quickly reversed and stocks rose back near record highs last month, a majority of the rate-cut premium added during the August 2-August 5 mini-panic remained in the curve.