It was a good week for besieged US government debt.

Benchmark US yields dropped around 20bps for the week, tied for the second-largest rally since the August growth scare.

Bonds are nowhere near out of the woods, but it paid to catch the falling knife after US payrolls overshot earlier this month.

The combination of oversold conditions, lopsided positioning, Scott Bessent’s reassurances (such as they were) and, most importantly, benign reads on consumer and producer prices, were enough to stanch the bleeding. For now.

“For the time being, the Treasury market remains decidedly in consolidation mode, and we struggle to envision a breakout in either direction,” BMO’s Ian Lyngen said late Friday. “Moreover, with 10-year yields now 20bps below the recent peaks, US rates are in a good position to respond to the Trump headlines without doing any technical damage.”

As you ponder the outlook for a Treasury complex trying to steady itself amid fierce undercurrents, it’s worth noting that following the Q4/early-January selloff, the risk-reward looks pretty asymmetric.

“5-6% yield plus high convexity means a ‘low risk’ bond portfolio generates 11-12% if yields fall back toward 4%,” BofA’s Michael Hartnett noted, editorializing around the table shown above (click to enlarge, as always).

The “low-risk” bond book is a 20/20/20/20/20 portfolio of bills, long bonds, IG and junk corporate credit. If you remove the bills, increase the allocation to the US long-end and venture into the riskiest high yield, you can juice that potential return to 14-15% for the same move in yields, Hartnett went on.

Remember: USD cash just outperformed Treasurys for a fourth consecutive year, and as discussed here, market participants have all but priced out any chance of a “hard landing” scenario, as proxied by SOFR-implied odds of aggressive 2025 Fed cuts.

In the event of a macro “Wile E. Coyote” moment that forces the Fed into a succession of deep, hurried rate cuts, the performance disparity between cash and bonds would close rapidly from both directions. Food for thought.