The most crowded short position in history is paving the way for a bull market in US Treasury bonds.

Author: Common Sense Investor (CSI)

Compiled by: Deep Tide TechFlow

Deep Dive: With the dramatic changes in the macroeconomic environment in 2026, market logic is undergoing a profound shift. Veteran macro trader Common Sense Investor (CSI) offers a contrarian perspective: 2026 will be a year in which bonds outperform stocks.

Given the heavy interest payment pressure on the US government, the deflationary signals released by gold, the extremely crowded bond short positions, and the impending trade conflict, the author believes that long-term US Treasury bonds (such as TLT) are at a breaking point with an advantage in "asymmetric games".

At a time when the market generally considers bonds "uninvestable," this article, through rigorous macroeconomic mathematical deduction, reveals why long-term bonds may become the asset with the highest return in 2026.

The main text is as follows:

Why I overestimated TLT and TMF – and why stocks will underperform in 2026

I am not writing this lightly: 2026 is destined to be the year bonds outperform stocks. This is not because bonds are “safe,” but because macroeconomic mathematics, position distribution, and policy constraints are converging in an unprecedented way—a situation that rarely ends with “higher for longer.”

I have put my views into practice with real money.

TLT (20+ year Treasury bond ETF) and TMF (3x leveraged long 20+ year Treasury bond ETF) currently account for about 60% of my portfolio. This article compiles data from my recent posts, adds a new macroeconomic context, and paints a bullish picture for long-duration bonds, especially TLT.

A summary of the core arguments:

• Gold's price movement: Gold's historical performance does not predict sustained inflation—it predicts deflation/deflation risk.

• Fiscal deficit: The US fiscal math is collapsing: approximately $1.2 trillion in interest payments annually, and it's still rising.

• Issuance structure: The Ministry of Finance's bond issuance is biased towards the short term, which has quietly increased the risk of systemic refinancing.

• Short squeeze: Long-term bonds are among the most crowded short positions in the market.

• Economic indicators: Inflation data is cooling, sentiment is weak, and labor market pressures are rising.

• Geopolitics: Geopolitical and trade headlines are shifting toward risk-off rather than reflationary.

• Policy intervention: When cracks appear in certain links, policies will always turn to lowering long-term interest rates.

This combination has historically been the rocket fuel for TLT.

Gold is not always an early warning sign of inflation.

Whenever gold rises by more than 200% in a short period of time, it does not indicate runaway inflation, but rather economic pressure, recession, and declining real interest rates (see Figure 1 below).

Historical experience shows that:

• After the gold price surge in the 1970s, it was followed by recession and deflation.

• After a surge in the early 1980s, a double recession ensued, and inflation was disrupted.

• The gold price surge in the early 2000s foreshadowed the recession in 2001.

• After the breakthrough in 2008, deflationary shocks followed.

Since 2020, gold has risen by about 200% again. This pattern has never ended in sustained inflation.

When growth reverses, gold behaves more like a safe-haven asset.

US interest payments are exploding in multiple directions.

The United States currently spends approximately $1.2 trillion annually on interest, which is about 4% of its GDP (see Figure 2 below).

This is no longer a theoretical question. This is a real outflow of money—when long-term yields remain high, interest will rapidly compound.

This is what is known as "Fiscal Dominance":

• Higher interest rates mean higher deficits

• A higher deficit means more debt issuance.

• More bond issuance leads to higher term premiums.

• A higher term premium leads to higher interest expenses!

This vicious cycle won't be resolved by "prolonged high interest rates" on its own. It must be resolved through policy intervention!

The Treasury's Short-Term Trap

To alleviate the immediate pain, the Ministry of Finance drastically reduced the issuance of long-term bonds:

• 20-year/30-year bonds currently account for only about 1.7% of total issuance (see Figure 3 below).

• The remainder was all allocated to short-term Treasury bills.

This doesn't solve the problem—it just pushes it onto the future:

• Short-term debt is constantly being rolled over.

• The refinancing will be conducted at future interest rates.

• The market has recognized the risks and is demanding a higher term premium.

Ironically, this is precisely why long-term yields remain high... and also why they will plummet once growth collapses.

The Fed's trump card: Yield curve control

The Federal Reserve controls short-term interest rates, not long-term rates. Long-term yields are controlled when the following conditions are met:

• Threatening economic growth

• Triggering an explosion in fiscal costs

• Disrupting asset markets

...The Federal Reserve has historically only done two things:

• Purchase long-term bonds (QE quantitative easing)

• Yield Curve Control

They don't act prematurely. They only act after the pressure becomes apparent.

Historical reference:

• 2008–2014: 30-year yield fell from ~4.5% to ~2.2% → TLT surged +70%

• 2020: 30-year yield fell from ~2.4% to ~1.2% → TLT surged +40% in less than 12 months.

This isn't just theory—it actually happened!

Inflation is cooling, but economic cracks are emerging.

Recent data shows that core inflation is falling back to 2021 levels (see Figure 4).

• The CPI momentum is waning.

• Consumer confidence is at a ten-year low.

• Credit pressure is building.

• Cracks are beginning to appear in the labor market.

The market is forward-looking. The bond market has already begun to sense these trends.

Extremely crowded short positions

TLT has extremely high short interest:

• Approximately 144 million shares were shorted.

• The number of days to cover exceeds 4 days.

Crowded trades don't slowly exit the market. They can reverse violently—especially when the market narrative shifts.

And more importantly:

"Short sellers entered the market in droves after the price movement began, not before."

This is typical end-of-cycle behavior!

Smart money is entering the market.

A recently circulated 13F institutional holdings report shows that a large fund has a large number of TLT call options in its quarterly increase holdings list.

Regardless of who's to blame, the message is simple: sophisticated capital is starting to restructure its duration strategy. Even George Soros's fund holds call options on TLT in its latest 13F filing.

Deflationary shock from tariff frictions

Recent news is reinforcing the "risk aversion" logic. President Trump announced new tariff threats regarding the Denmark/Greenland dispute, and European officials are now openly discussing freezing or suspending their participation in the EU-US tariff agreement as a response.

Trade friction will:

• Combating growth

• Squeezing profit margins

• Reduce demand

• Investing capital in bonds rather than stocks

This is not an inflationary impulse, but a deflationary shock.

Valuation Mismatch: Stocks vs. Bonds

Today's stock pricing reflects:

• Strong growth

• Stable profit margin

• A favorable financing environment

Bond pricing reflects:

• Fiscal pressure

• Sticky inflation concerns

• Permanent high yield

If either of these two narratives deviates, the returns will diverge dramatically.

Long-duration bonds have "convexity," while stocks do not.

Upside Case Analysis of $TLT

TLT owns:

• Effective duration of approximately 15.5 years

• You can expect a yield of ~4.4–4.7% while you wait.

Scenario Analysis:

• If long-term yields fall by 100 basis points (bps), the price return of TLT is +15–18%.

• A drop of 150 basis points would yield a TLT return of +25–30%.

• A drop of 200 basis points (which is not extreme in history) means it will surge by more than +35-45%!

This doesn't even take into account interest income, convexity dividends, and the accelerating effect of short covering. That's why I see "asymmetric upside potential."

in conclusion

To be honest, after the disaster of 2022, I swore I would never touch long-term bonds again. Watching duration assets get shattered is a very frustrating experience.

But the market won't pay for your psychological trauma—it only pays for probability and price.

When everyone agrees that bonds are "not an investment," when sentiment has bottomed out, when short positions are piling up, when yields are already high and growth risks are rising...

That's when I started to enter the market!

• TLT + TMF currently make up about 60% of my portfolio. I achieved a 75% return in the stock market in 2025 and reallocated most of my funds to bond ETFs in November 2025.

• I'm "holding bonds and waiting for them to rise" (to get a yield of over 4%).

• My positions are based on policy and growth shifts, not on empty narratives.

2026 will finally become the "Year of Bonds".