Peak Pessimism On US Treasuries? History Says A Summer Rally May Be Near

As long-dated Treasury yields hover just below 5% and Moody's strips the U.S. of its final AAA credit rating, investor sentiment toward U.S. government bonds has reached some of its most bearish levels in decades.

Much of the gloom surrounds concerns over rising fiscal deficits, ballooning interest expenses and a perceived lack of political will to rein in debt.

At the center of the debate is President Donald Trump's tax plan, dubbed as the “One, Big, Beautiful Bill,” which is now under fire for potentially worsening America's fiscal outlook.

According to new estimates from the Congressional Budget Office released Wednesday, the legislation is expected to slash federal revenue by $3.67 trillion through 2034, while cutting just $1.25 trillion in spending.

The net effect: a $2.4 trillion increase in the federal deficit over the next decade.

This comes at a time when the U.S. deficit-to-GDP ratio already stands at 6%-7%, levels rarely seen outside of major crises such as wars or the COVID-19 pandemic.

A growing deficit implies increased bond issuance, and with higher supply comes the need for more attractive yields to lure buyers—putting upward pressure on rates and downward pressure on bond prices.

With the national debt surging past $36.2 trillion in early June and long-term yields climbing, influential Wall Street voices like JPMorgan Chase CEO Jamie Dimon and former Bridgewater Associates CIO Ray Dalio are warning that a full-blown crisis is no longer a distant risk—but an inevitable consequence of unchecked borrowing in Washington.

A Contrarian Opportunity?

Despite the bleak macro backdrop, a contrarian perspective would say that we may be approaching peak pessimism on U.S. Treasuries.

While the fundamentals and technicals remain unfavorable, a glimmer of hope may lie in seasonal performance trends.

According to data from Seasonax, the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT)—the largest ETF tracking long-dated U.S. government debt—has historically delivered strong summer returns.

Looking at the past 22 years, a strategy that buys TLT on June 10 and sells it on August 31 (or the nearest trading day thereafter) has delivered a median return of 4.3%.

The strategy was profitable in 18 of the last 22 years, reflecting an 82% win rate. Notable rallies occurred in 2010 and 2019, with gains of 13.6% and 12.8%, respectively.

The biggest summer-season loss in this period occurred in 2003 when TLT fell 13.2%. However, most of the losing years showed only modest declines.

With a Sharpe ratio of 1.01 and a Sortino ratio of 1.87 during this window, the strategy has historically delivered positive risk-adjusted performance.

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