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There’s no question about it. Investors are overwhelmingly short 10-year Treasury bonds. As one of the original authors of the bullish case for bonds (from late 2014) we’re getting a lot of questions from our subscribers on this subject. They want to know our latest thinking on the massive move in the 10-year Treasury since Election Day (from 1.85% on 11/8 to 2.49% today).

Are investors too bearish on bonds? Maybe…

Is now a good time to buy bonds? Maybe… the when and why matters.

Sure, institutional investors are net short 10-year Treasury bonds today (for more on that watch the video above). But that alone is not a reason to get long.

“For me to buy bonds I need to see a couple of things,” Hedgeye CEO Keith McCullough recently explained on The Macro Show.

  1. Timing: The longer-term trend for Treasuries is bullish. So any long position would be for a short-term trade. Stay nimble. We don’t expect GDP to slow until the first quarter of 2017 (which will be reported in April). A lot can happen between now and then.
  2. Using Our Risk Ranges: “I’d trade anything at the top end of the range,” McCullough says. The current top-end of our immediate term risk range for the 10-year Treasury is 2.55%. At that level bonds are a buy for a trade.
  3. Data Dependent?: Investors should watch Retail Sales and Industrial Production for the month of November, which will both be reported Wednesday. These data releases will provide a good barometer of where the data is headed.

More from McCullough:

“Did you think I’d say I’m data dependent? Bingo. Do I use the range? Yes. Does timing matter in between a bearish growth catalyst when you don’t yet have bearish growth data? Yes. If we do get bearish growth data will that give us a reason, at the right level, to buy bonds? Yes.”

In other words, we’re sitting this one out… for now.