The great bond rally

November 2023 will go down as one of the most explosive fixed-income rallies on record. The ten-year US Treasury yield collapsed by more than 80 basis points from its October peak, settling near 4.17 per cent and dragging global borrowing costs down in sympathy. What began as a relief rally quickly transformed into a violent, structural positioning squeeze.

The Mechanical Short Squeeze

Macro hedge funds and institutional accounts that had spent months accumulating massive short positions in duration were caught completely flat-footed by cooler inflation data and dovish Fed signals. As yields broke through technical resistance levels, systematic trend-followers and momentum models were triggered, forcing aggressive short-covering. The rally fed on its own mechanical liquidity, proving once again that positioning dictates market moves as much as fundamentals.

The fierce duration rally was not merely a vote of confidence in disinflation, but a brutal positioning unwind that punished over-leveraged bond bears with mathematical precision.