BTIG: Inflation Exceeds Expectations but U.S. Treasury Yields "Fail to Rise," the "Simultaneous Decline of Interest Rates and Nasdaq" May Be the Most Painful Trade

According to Jinse Finance APP, the U.S. investment bank BTIG stated on Wednesday that after inflation data came in higher than expected, the bond market showed a typical "news failure," confirming that U.S. Treasury yields (SHY, TLT, IEF) have reached a tactical top. This change has set a highly contrarian trap trade for the stock market—"falling interest rates, but the Nasdaq declines instead."

BTIG strategist Jonathan Krinsky quoted Mark Twain in a report to clients: "What gets you into trouble is not what you don't know, but what you are absolutely sure of that just isn't so."

The report pointed out that the 30-year U.S. Treasury yield briefly jumped 8 basis points after the strong CPI data was released, but then almost all of the gain was given back, and it ended up rising by less than 2 basis points. Against the background where inflation data should be bearish for bonds and push yields higher, the lack of further upside in yields exemplifies a textbook "news failure."

"The best clue for finding a trend reversal is a 'news failure'," Krinsky wrote. "When A happens, you would expect B; but when C happens instead, it's time to take notice."

Beyond Consensus: The Real Pain Trade

The market generally believes that falling yields are positive for the stock market. But Krinsky warned that the real pain trade is in the opposite direction—when rates and tech stocks decline together. If the "Magnificent Seven" U.S. stocks ultimately fall alongside rates, it would add more weight to his "Red October" outlook.

The report stated that internal tensions are already appearing in the market structure: nearly 79% of the New York Stock Exchange's trading volume is concentrated in declining stocks. The deterioration in breadth indicators corroborates the view that yields have topped out.

For investors, this means that the previous one-sided logic of "bet on rate cuts, buy tech stocks" may be giving way to a new combination: falling yields no longer equate to rising risk appetite, but instead reflect a repricing of growth and earnings expectations.