Investors are starting to question the epic bond rally that’s driven global yields to new lows and fuelled the US Treasury markets’ best performance since the era of quantitative easing. The warning signs go beyond this week’s failed German 30-year bond auction, which showed that demand may be faltering for negative yields across Europe, even amid growing evidence of ebbing economic growth.

In the US, the momentum buyers who latched on to falling yields are seeing signs rates could be bottoming out, with volatility rising and market depth deteriorating. Cliff Asness, co-founder of quantitative investing giant AQR Capital Management, summed up valuation concerns in a blog post this month titled, ‘Bonds are Frickin’ Expensive’. While Treasuries are not an automatic huge short, the levels are at least worth discussing with yields at such historical extremes, he wrote. “It has sort of been the momentum traders’ dream trade,” said Kathryn Kaminski, chief research strategist and portfolio manager at AlphaSimplex Group. “Our conviction for bonds is still very strong, but there has been increased volatility – so in risky terms, risk trade-off has gotten worse. And with more risk, you become a little bit more sceptical.”

Amid US-China trade tension, yields plunged last week. Rates on 10-year Treasuries breached 1.5 per cent for the first time since 2016, and 30-year yields fell to record lows below 2 per cent. The market’s bellwether US recession indicator – the 2- to 10-year yield gap – inverted for the first time since 2007, sending stocks tumbling.

For traders riding the bond rally, it’s been a stellar year. So good, in fact, that it is raising a warning flag for strategists at Societe Generale.

A SocGen index tracking the trend-following strategy in government-debt futures has climbed to a record, with algorithms positioned long across the curve.

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