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  • Christian Armbruester

Inflation and The Lithuanian Lion

Why good things come to those that wait.

When looking at long dated government bonds, I am reminded of that most infamous soundbite from one of my favourite tennis players after he finally won against Jimmy Conners: nobody beats Vitas Gerulaitis 17 times in a row. That’s right, I have called this one wrong since 2011. For those of you who are too young to remember when tennis was played in incredibly tight shorts, you may recall that yields started dropping dramatically at the turn of the last decade.

We had seemingly just overcome the abyss that was the great financial crisis, when European banks started to reel from bad debt. The 30 Year German bonds dropped in yields from around 4% all the way to 2.8%, and I just could not bring myself to buy something for such a paltry return. Boy was I wrong. In 2014, yields dropped to 1.0% and holders of the seemingly worst financial investment of all times made a killing.

For sure I thought this time I needed to short those loser bonds for it was inevitable that yields would rise again. However, just like the two-handed backhand proved utterly superior to the one-handed slice, I got crushed in 2016, when yields dropped to 0.5%. Surely now the party was over, and I gained a short reprieve when yields actually rose the following year. Victory seemed tantalisingly close, but then in 2019 the unthinkable happened: yields went negative.

At this stage, I was throwing tantrums that would have made John McEnroe proud. You cannot be serious that anyone in their right mind would pay the German government to lend them money? So here we are in March 2021, and me thinks again that I could possibly be right, finally. All we have to do is look at our American friends where everything is bigger. The move in 30-year Treasuries since the beginning of the year has been nothing short of breath-taking. Never have we seen rates move up faster and at long last one can talk about the risk of inflation without getting laughed out of the room.

Yes, what goes up can also go down, and just like Crispin Odey who made 38% last month shorting, yes shorting, long dated government bonds, I rejoice. All that remains now is for tennis courts to open up again at the end of the month. So, if you see a long haired, middle aged man, on a court somewhere in Surrey with a huge grin on his face, do not be afraid. There is a trading god after all, and the sun does (eventually) shine upon those that hold true to their convictions: govvies suck!


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