Shorting bonds needs three forecasts to land at once, and pays rent while you wait

Being short a bond is not one forecast. It requires yields to rise, to rise far enough to matter, and to do it before the coupon closes the gap, and A Wealth of Common Sense is right that getting all three simultaneously is very hard ^[10]. The third is the one that never appears in the pitch.

Take the asymmetry the F/m Investments tool describes and reduce it to a ratio: roughly six units of gain per unit of loss on an equal-sized move in the 10-year ^[14]. The reason is not exotic. Income accrues to the holder whatever rates do, so a price loss arrives net of a year of carry while a price gain arrives on top of it. Selling that structure means selling convexity and paying the coupon for the privilege.

This year makes it concrete. If the Agg's total return is about zero and its yield is close to 5 percent, the price leg lost roughly five points and the income covered it ^[15]. Rates went the way the bears said, and holders still finished whole.

The crash argument deserves the same arithmetic. That near-20 percent drawdown across 2022 and 2023 is about four years of today's coupon ^[16], and long bonds have not clawed it back ^[7]. But the loss was manufactured from a starting yield near zero, where there was no income to absorb anything. Long bond yields have not been this high since 2007 ^[8], which is another way of saying the shock absorber missing in 2022 is now fitted.

The example has limits. The 12-and-2 pairing is quoted for a 100 basis point move at current yields, and convexity itself changes as yields change ^[13], so a larger or slower repricing will not scale from it. The sentiment read is softer still: the same writer flagged international stocks as the most hated asset class in December 2024 and they subsequently ran ^[1], while conceding sentiment has become harder than ever to crack ^[2]. Crowding is a hint, not a thesis.

The thesis is the payoff shape. The fundamental case against bonds (deficits, sticky inflation, high nominal growth ^[4]) can be entirely correct and still lose money for anyone expressing it through short duration, because the instrument charges for waiting. If yields keep climbing, reinvestment gets better; if the economy slows, the higher starting yield and the falling yield both pay ^[17]. That is a worse side of a trade than the macro crowd appears to think it is taking.