Citadel Securities’ Frank Flight flips bullish on US bonds, citing crowded shorts and cooling inflation

Frank Flight, head of macro strategy at Citadel Securities, has done a clean U-turn on US Treasuries. In a client report dated August 25, the strategist reversed his bearish stance on long-end bonds, arguing that crowded short positioning and improving inflation data now set the stage for a rally. It’s a sharp pivot from the man who, on July 1, warned fixed-income investors to brace for a “cruel summer” of rising yields and hawkish Fed action. Less than two months later, he’s telling the same audience that the pain trade has flipped. From bearish to bullish in eight weeks The August note tells a different story. Flight now sees risks “skewed towards lower yields,” a phrase that in bond-market speak translates to: prices are more likely to go up than down. Two factors drove the reassessment. First, bearish positioning in the Treasury market has become overcrowded. When too many traders pile onto the same side of a bet, the trade becomes fragile. Any positive catalyst, even a modest one, can trigger a wave of short-covering that accelerates price moves in the opposite direction. Second, inflation data has been cooperating. While Flight’s July note assumed sticky price pressures would...