Takeaway

The presenter argues that while the US 10-year Treasury yield is approaching the critical 5% level, the initial breach will likely attract buyers and cause a temporary pullback in yields. The real "death knell" for the AI-led equity boom is expected later, when yields top out (potentially near 5.25%) and begin to fall, mirroring the dynamics of the 1998-2000 tech bust.

What the presenter said

• US Treasuries are on the cusp of a 5% yield, a level not sustained in 19 years, with the 10-year note getting within 3.5 basis points of the mark today. (00:06)
• Continuous US government spending makes it difficult to attract bond buyers, especially when 10-year yields at 5% are competing with 3.5-4% inflation. (00:36)
• In October 2023, then-Secretary Yellen managed a similar spike to 5% by shifting issuance to short-term debt, which coincided with a bottom in the S&P 500. The current Treasury Secretary faces a similar, larger problem. (03:09, 04:31)
• Yields are described as 'absolutely parabolic' due to a hawkish Fed, a poor PPI print, and expectations for a strong CPI print. (04:50)
• The presenter expects the first test above 5% to lead to a temporary pullback in yields but sees the next major target as 5.25%, a key resistance level from 2006-2007. (05:14, 05:25)
• A sustained rise in yields, followed by a top and subsequent decline, is presented as the scenario that could signal the end of the AI boom, similar to the late 1990s tech bust. (05:47)
• The long-term outlook for gold is bullish due to the structural theme of increasing government spending. (08:42)

Trade ideas

• Instrument: US 10-Year T-Note Futures (ZN)

  • Direction: Long
  • Thesis: The initial test of the 5% yield level is expected to attract bond buyers, leading to a temporary pullback in yields (rise in futures price) from oversold conditions.
  • Horizon: Short-term
  • Conviction: Medium

• Instrument: Gold (XAUUSD)

  • Direction: Long
  • Thesis: Government spending trends provide a long-term tailwind. Short-term pullbacks to prior resistance levels like 4100 or 4200 could offer buying opportunities as they establish higher-low support.
  • Horizon: Long-term
  • Conviction: Medium

Levels and data cited

Price Levels * US 10-Yr Yield: 5.0% (resistance), 5.25% (target/resistance from 2006-07), 4.8% & 4.74% (potential pullback support). * US 30-Yr Yield: 4.7-4.8% (cited as the low in 1998). * Gold (XAUUSD): 4200 & 4100 (potential support/buying opportunities), 4000 (prior support that held).

Data Cited * Inflation: Cited in a 3.5% or 4% context. * PPI: The "morning's" print "wasn't pretty". * CPI: Fear that "tomorrow's" print will show strength. * RSI (10-year Note Futures - ZN): Weekly at 27.29, Daily at 25.83.

Risks and what would invalidate this

• Yields could continue to rise without a significant pullback, causing bond prices to fall further.
• The current Treasury Secretary may be unable to manage the debt issuance as effectively as Yellen did, leading to sustained high yields.
• A hawkish Fed, prompted by strong inflation data, could hike rates again and push yields higher.
• A significant and sustained rise in yields could ultimately "upend" the AI boom sooner than anticipated.