One theme of my posts since Russia invaded Ukraine is that America's economic war against Russia is hurting America. If you missed yesterday's post, it sketched out reasons why America, and the West in general, have underestimated Russia's economy, and thus the impact our financial sanctions would have on it.
And American policymakers seem to have underestimated the impact of their sanctions on the U.S., including the impact on U.S. Treasury bonds. But it's something I wrote about here last month (Betting Against Bonds):
TBT is a 2x levered bet against long duration U.S. Treasuries, the bonds most sensitive to interest rate movements. Our system doesn't consider the macro picture when selecting its top names. Instead, it gauges stock and options market sentiment to estimate which securities are likely to perform the best over the next six months. Nevertheless, that bottoms-up approach often reflects the macro picture, and the inclusion of TBT certainly does.
As we pointed out over the weekend (Sanctioning Ourselves), U.S. sanctions on Russia--particularly, the freezing of its dollar reserves--will likely lead to a weaker dollar, as non-Western countries diversify away from the dollar to avoid having their reserves frozen by us in a future conflict.
A likely result of that will be higher interest rates in the U.S., as it may take higher rates to entice risk-averse, non-European countries to hold U.S. Treasury bonds.
Flashforward to this week, and here's how TBT (and our other top names from March) have done so far since then.
TBT was up 13.42%, as of Monday's close. Note that all the names up double digits since last month were impacted by our sanctions on Russia, which is one of the world's largest exporters of oil (NYSE:GUSH) (NASDAQ:TSLA) benefiting from expensive oil, fertilizer (MOS), and steel (NYSE:X).
Because TBT was a top ten name in our system again on Monday.
Screen capture via Portfolio Armor on 4/11/2022.
