Happy Friday!

Every week, we dive deep into macro trends, analyze asset movements, and uncover the best value plays in the world of macro. These insights are shared with hedge funds and institutional clients, and today, we’re bringing them directly to you.

While the macro landscape can be complex, we believe it doesn’t have to be intimidating. In this series, we break down the key takeaways, explain what we’ve told hedge funds, and outline how we’re trading these ideas—all in a straightforward and actionable way.

What We Told Hedge Funds This Week

#1 – The Growth Outlook is Slowing in the US, and Bond Markets Aren’t Ready

One of our strongest convictions right now is that the US bond market is not prepared for the macro trends likely to unfold as we approach 2025.

Our US nowcasting model, which tracks daily and weekly time series to provide real-time insights on growth, inflation, and liquidity, has been highly reliable. It correctly identified the growth surge in early 2023, the slowdown in July 2024, and the rebound since September. Now, it’s signaling early signs of weakness once again.

While it’s far from recessionary territory, markets are all about expectations. Current positioning is heavily tilted toward higher yields and a more hawkish Fed, but the services sector—a key pillar of strength—has started to weaken in our models. Historically, this has been closely correlated with the 10-year yield, suggesting that bonds might soon offer a compelling contrarian trade.

Chart 1.a: US Growth is Starting to Weaken in Our Models