One thing you learn pretty quickly in markets is that you can’t trust much.
Wall Street analysts build careers being wrong. Economists somehow manage to be worse.
Journalists aren’t even trying to get it right. They’re trying to tell stories.
And traders? The best ones are constantly changing their minds. It’s part of the job.
So what can you actually trust?
For me, it comes down to two things: dogs and the bond market.
Dogs are easy. They show up. They’re loyal. They do what dogs are supposed to do. No hidden agenda. No spin.
The bond market works the same way.
It’s too big, too important. And there’s too much money at stake for anyone to hide.
You can listen to what people say if you want. I’d rather watch what they do.
And nowhere are those footprints clearer than in bonds.
Bonds Signal Inflationary Trend
This week we saw new highs in the spread between inflation-protected U.S. Treasury securities and traditional nominal yielding treasuries.
This is what the bond market thinks about inflation:
Not someone’s opinion, not government propaganda.
The bond market. Price. Facts.
If you’re even wondering what inflation is looking like at any point, you can just check the bond market.
While there are several ways to view this spread, using these ETFs keeps it simple.
We’re taking the Treasury Inflation Protected Securities ETF (TIP) vs the U.S. 10-year Treasury Bond ETF (IEF) to see whether market participants are favoring the inflation protected fund or if they’re doing the opposite.
Right now, it’s pretty clear. Money is choosing inflation protection.
But here’s where it gets even more interesting.
This isn’t happening in isolation.
This bond market spread tends to move with one of the most important inflation inputs we have.
Bonds and Crude Oil
Now let’s take it one step further.
When you overlay these bond spreads with crude oil, the relationship becomes obvious.
They move together:
Major lows. Major highs. Same story.
Look at the big turning points. The 2009 lows after the Great Financial Crisis. The 2016 washout. The 2020 COVID-19 crash.
In every one of those cases, bond market spreads and crude oil bottomed together.
Same thing at the highs, including the peak in 2022 and the earlier tops before that.
These are not random coincidences.
But here’s what really matters.
When you zoom in, the bond market often gets there first.
In 2014, these spreads were already rolling over before crude oil crashed.
At the 2018 and 2022 highs, you had divergences. Bond spreads were already making lower highs while crude was pushing into its final peak.
And then there’s 2020:
Crude oil traded below zero. One of the wildest things we have ever seen in markets.
But the bond market wasn’t buying it.
Spreads had already bottomed more than a month earlier.
They were pointing higher, telling you inflation pressures were coming back. Telling you energy prices weren’t staying down there.
And what happened next?
One of the most historic rallies in energy- and inflation-sensitive assets we’ve ever seen.
The bond market wasn’t guessing.
It already knew.
Humans Just Get in the Way
I trust the bond market.
It’s too big, too liquid, and too important for anyone to hide what’s really going on.
And I trust dogs. They’re a man’s best friend.
Humans are where things get messy.
Not always on purpose. Most of the time they’re just wrong, or they’re playing a different game than we are.
Our job is simple: to make money.
And even if you never touch a bond, information is coming out of that market every day that applies directly to stocks, commodities, and everything else we care about.
So look at what’s happening right now.
Bond spreads are breaking out to new cycle highs. What’s that telling you?
That inflation is over? That energy is about to roll over?
Or that we’re heading into another leg higher in commodities and inflation?
I think you know the answer.
I trust dogs.
I trust the bond market.
And I trust the prices of assets.
That’s where the truth lives.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs