Traders Bet on Bond Rally Despite Risks, Using Controversial 'Bond Math'

Traders are using "bond math" to justify making big bets on long-dated Treasurys, arguing they have more to gain from a rally than to lose from further deterioration.

The math shows a 50 bps drop in 30-year bond yields could result in 13% returns, while a 50 bps rise leads to a 2.6% loss.

Some argue this math overlooks the opportunity cost of holding short-term bills yielding 5.4%, eliminating the asymmetry.

Factors like inflation expectations and economic data are more impactful on prices than this math.

Strategists see yields near cycle highs and expect them to fall, but auction demand shows investors remain wary.