Sell Bonds, Buy Gold?

Yes, that has been our advice since mid-August. Our August 19, 2024 Morning Briefing was titled, "Get Ready To Short Bonds?" We wrote: "Bond investors may be expecting too many interest-rate cuts too soon if in fact August’s economic indicators rebound from July levels and the Fed pushes back against the markets’ current expectations for monetary policy. So we are expecting to see the 10-year Treasury yield back in a range between 4.00% and 4.50% next month." At the time, the 10-year Treasury bond yield was 3.88% (chart).

We were right about the economy and bond yields despite the Fed's reaction function turning out differently than we expected. Instead of remaining moderately hawkish, Fed Chair Jerome Powell turned extremely dovish in his August 23 Jackson Hole speech. That drove the bond yield down to 3.62% on September 16. On September 18, the Fed cut the federal funds rate by 50bps. We concluded that was too much, too soon. We reiterated our view that the yield would climb back up over 4.00% on better-than-expected economic data and on a none-and-done outlook for rate cutting by the Fed over the rest of the year.