"Bond Math Reveals High Returns and Low Risk for Bold Traders, Despite Inflation Concerns"
Originally Published 2 years ago — by MarketWatch
Traders are using "bond math" to justify contrarian bets on long-dated Treasurys, as they believe the potential gains from a rally outweigh the losses from further price deterioration. Calculations show that a 50 basis point decline in yields could result in a 13% return, while the opposite would lead to a 2.6% loss. However, critics argue that factoring in the opportunity cost of holding a one-year Treasury bill with a higher yield diminishes the attractiveness of these returns. While this bond market theory has little impact on price direction, it highlights potential outcomes for traders.