US Treasuries have had a terrible run. Returns have fallen sharply and investor sentiment has deteriorated alongside them. But after revisiting the underlying data, the picture is more nuanced than simply saying investors have become extremely bearish or capitulated.
Our Sentiment Matters Aggregate (SMA) for US Treasuries has fallen to the 30th percentile. That is clearly bearish, but still far from extreme. What stands out more is the change in sentiment. Treasury sentiment was at the 93rd percentile a little over a year ago and still at the 72nd percentile two months ago. In little more than a year, it has moved from one of the more bullish readings in its history to below average.
And underneath the aggregate, the disagreement is also interesting. Momentum is close to historical lows and speculative investors are positioned very bearishly. Asset Managers, by contrast, are close to their most bullish positioning in the history of our data.
So this is not a story of universal capitulation. It is a story of a dramatic reversal in sentiment — and unusually different views across investor groups.
The key message: Treasury sentiment has deteriorated sharply, but it has not reached capitulation. Our SMA is around the 30th percentile and remains above its historical buy threshold. The more striking feature is the speed of the reversal — and the unusually wide disagreement between different sentiment and positioning indicators.
Level
We always start with the aggregate.
Our US Treasury SMA currently stands at the 30th percentile. That means sentiment is bearish, but still some distance from the levels historically associated with genuine pessimistic extremes.
The SMA fell into single-digit percentiles in 2018 and again during the 2021–22 bond sell-off. Back then, US inflation was hitting 8%, the Fed was abandoning its "transitory" narrative and quantitative tightening was getting underway.
We are nowhere near those sentiment levels today, but that probably also reflects a less extreme set of perceived fundamental headwinds. So despite the poor performance of Treasuries, the broader sentiment picture is better described as moderately bearish rather than extreme.
More importantly, our SMA is still some way from the levels that have historically been followed by consistently strong returns. Readings around 30 have actually been followed by slightly below-average Treasury returns over the subsequent one, three, six and 12 months. The hit rate only becomes more meaningful over 12 months, when below-average returns occurred more than 60% of the time.
In other words, the current level is bearish, but not yet contrarian.
Change
The current level only tells part of the story. What stands out more is the speed and scale of the deterioration.