Core Viewpoint - Cathie Wood's prediction of a potential drop in inflation to zero could significantly impact long-term Treasuries, suggesting a bullish outlook for this asset class if her forecast materializes [4][5][11] Inflation Outlook - Wood believes inflation could decrease substantially due to various factors, including falling oil prices and rents, despite existing pressures from tariffs [4][5] - The current 10-year breakeven inflation rate is approximately 2.3%, and if inflation were to drop to zero, long-term bond yields could also decrease by around 2.3% [6] Long-term Treasuries Potential - The iShares 20+ Year Treasury Bond ETF (TLT) has a duration of about 15.5 years, indicating that for every 1 percentage-point decrease in interest rates, the ETF's value could rise by 15.5% [7] - If long-term rates decline by 2.3 percentage points, this could imply a potential upside of 35% for long-term Treasuries if Wood's prediction holds true [8] Economic Indicators - Current economic indicators suggest a cooling labor market and a shrinking manufacturing sector, which may contribute to disinflation [10] - The potential influence of artificial intelligence on disinflationary trends is noted as a significant factor that could positively affect the bond market [11]

Core Insights - Concerns over inflation, deteriorating U.S. fiscal health, Federal Reserve independence, and geopolitical instability are prompting central banks to shift their focus back to gold, traditionally viewed as a safe asset [1][9] - Gold has recently surpassed the euro to become the second-largest global reserve asset after the U.S. dollar, marking a significant shift as it now represents a larger share of central banks' reserves than Treasuries for the first time since 1996 [2][9] - The last time gold held a greater share of global reserves than Treasuries was in 1996, a period characterized by aggressive gold sales by many European countries ahead of the euro's launch [3][6] Market Context - Gold prices experienced a significant decline to around $250 an ounce in August 1999, down 40% from early 1996, which led to the adoption of the "Washington Agreement" to cap central bank sales [6] - The late 1990s environment was not favorable for gold, marked by solid economic growth, low inflation, and a rare U.S. budget surplus [6] - The current global macro environment is markedly different, presenting conditions that are more conducive to gold investment, while Treasuries are facing relative struggles [7]

Group 1 - Ongoing fiscal deficit concerns are impacting the potential for long-term Treasuries, with weakening global demand and recent policies from Trump contributing to this situation [1] - The front end of the yield curve has dropped significantly, while the long end remains elevated, indicating a divergence in market expectations [1] Group 2 - The article emphasizes the importance of fundamental equity research and macro strategy in understanding market dynamics [1]