The bond rally is a trap; insurers' easy money is gone.

Transcript

Tom The bond market is throwing a massive party right now, but I have a feeling someone forgot to mention that the building is technically on fire.

Marie Look, it is Wednesday, June seventeenth, and this is the New York Edition of Investment Flash. I am Marie, joined as always by Tom and Gerald, and Tom, you are right to be skeptical, even if you are usually the one wearing the party hat.

Gerald Yeah look, the party is already over if you actually read the note from Bloomberg. Georgia Hall and her team are essentially saying this rally is a massive headfake because those higher-for-longer rate threats are not going anywhere, regardless of what the energy prices are doing.

Tom No way, Gerald, you are being the classic gloom-and-goom guy. The long-duration Treasury ETF is down about fifty-three percent over the last year, surely we are at a point where the worst is priced in?

Marie Wait—wait a second, Tom. The Bloomberg data shows that governments are facing these massive borrowing costs for the rest of the year, truce in the Middle East or not. The structural deficit issues are not just going to evaporate because yields dipped for a week.

Gerald Exactly. Analysts revising their outlooks after the move has already happened is basically a free retirement plan for them, but it does not help us. To be fair, seeing the long-bond ETF sitting where it is, it looks more like a trap than a floor.

Tom ha — fair enough. I guess I am just looking for that bounce, buddy.

Marie Right—

Tom Totally.

Gerald That's the whole story.

Marie See, this is what I mean about the credit markets too. Jules Rimmer at MarketWatch is pointing out this weird paradox where the biggest borrowers are the strongest credits, so everything looks fine on the surface, but the complacency is getting thick enough to cut with a knife.

Gerald Honestly, the fact that three hundred billion dollars in new debt was absorbed since the start of twenty-twenty-six without a single ripple in credit-default swaps tells me people have completely forgotten what risk looks like. If you are holding investment-grade or high-yield bonds here, you are essentially picking up pennies in front of a steamroller.

Marie I am going to push back here on the 'pennies' comment, but I agree the easy gains are gone. Speaking of easy gains being gone, look at the health insurers. David Wainer over at the Journal is saying the Medicare crisis is over for names like UnitedHealth, but so is the rally.

Tom Wait, UnitedHealth is up about twenty-one percent year to date and only two percent off its fifty-two-week high. You are telling me the tank is empty?

Marie Honestly, yes. Calling the end of the rally on insurers right as they hit a new high? That is the third time this cycle someone has tried that, but this time the regulatory tailwinds from the Trump administration are already baked into the price.

Gerald oh, that's brutal. But Marie is right. If you look at Cigna, it is about fourteen percent below its high, which suggests there is actually more room for the downside there than for UnitedHealth to keep climbing. The cost trends are cooling, sure, but the market has already celebrated that with a three-month parade.

Tom Alright, fair enough. If we are moving away from crowded trades, can we talk about Glanbia? This Irish nutrition maker is up forty-seven percent year to date because of the weight-loss drug craze. For real, protein powder is the new gold.

Gerald Yeah look, it is a clever angle. People on those G-L-P-one drugs lose muscle mass if they are not careful, so they are chugging protein shakes. Glanbia is the direct play, but Novo Nordisk is still the engine behind the whole trend, even if it is down seventeen percent this year.

Marie No, but that's exactly my point! If Novo Nordisk is the leader and it is trading at a discount compared to its peak, why are we chasing the supplement makers? It feels like buying the shovel when the gold mine is actually having a sale.

Tom One hundred percent.

Gerald Spot on.

Tom Nailed it.

Gerald Alright, let's pivot to Europe for a second because the UniCredit and Commerzbank deal is actually getting legs. The Wall Street Journal is reporting this could be the biggest banking merger in years. Last session, Commerzbank was up over three percent on the news.

Tom Buddy, I love a good consolidation story! If they create a pan-European giant, the synergies alone should drive those stocks through the roof. It is about time we saw some real scale in European banking to compete with the big US players.

Marie Not so fast, Tom. Cross-border mergers in Europe are a regulatory nightmare. Even if the logic is sound, you have to deal with different labor laws and national pride. I am not saying it won't happen, but calling it a guaranteed win is a bit much.

Gerald the thing is, Commerzbank is still two percent below its fifty-two-week high even after that jump. If the deal hits a snag, that gap closes the wrong way very quickly. I'd be watching the spread on this one carefully.

Tom Gerald, remember when you said the same thing about the London Stock Exchange deal? You always find the cloud in the silver lining, mate.

Gerald hah — yeah, yeah. I just prefer my silver linings without the lightning strikes, thanks.

Marie Okay, let's look at this Hormuz logistics situation because this is our most original take for the day. MarketWatch is flagging that while the peace agreement might get oil flowing again, fertilizer supplies are still stranded.

Tom Wait, why would they move the oil and leave the fertilizer? That seems completely backwards if you are trying to fix the global supply chain.

Gerald Honestly, it comes down to priority and insurance. Oil is the headline-grabber. But the split is the trade here. You sell the oil ETF because the geopolitical premium is melting away—it is already down fourteen percent in a week—and you buy C-F Industries.

Marie Exactly, because if those fertilizer shipments stay stuck, global supply tightens and C-F Industries has all the leverage. They are currently twenty-six percent below their fifty-two-week high, so you are not buying at the top of the mountain.

Tom That is a great call. It is like a two-speed commodity market. I am also seeing a similar shift in the energy transition space. Nikkei Asia is reporting that battery storage costs have finally fallen below the cost of gas-fired power plants.

Marie Hold on, that is a massive milestone! We have been waiting for cost parity for years. If battery storage is cheaper than gas, the entire 'bridge fuel' argument for natural gas starts to fall apart.

Gerald Yeah look, it is bad news for the United States Natural Gas Fund ETF. It is already down thirty-five percent from its high. But for the solar ETF, it is a massive tailwind. Even though solar has rallied seventeen percent this year, it is still twenty percent off its highs. The economics just changed in a big way.

Tom Right, and speaking of shifting economics, we have to talk about the hot mic moment at the G-seven. UK Prime Minister Starmer basically whispered that a trade deal with India is finally back on the table.

Marie I love a good hot mic leak. It is much more honest than the official press releases. If that trade deal goes through, India's export sectors could get a massive boost. The India ETF is down nearly ten percent year to date, so the timing for a rebound is perfect.

Gerald Fair enough, but UK equities are only five percent off their fifty-two-week high. A trade deal is good, but is it enough to push the UK ETF into new territory? To be fair, India probably has the better entry point here.

Tom No way, buddy, the UK has been the forgotten market for years. Any good news is going to be magnified. But speaking of forgotten markets, look at what is happening to China tech.

Marie It is not just forgotten, Tom, it is being actively avoided. The China Internet ETF is sitting exactly at its fifty-two-week low. Bloomberg is saying that global traders are ditching the offshore benchmarks to fund their bets on A-I winners elsewhere.

Gerald the thing is, it is not just a preference for A-I; it is a structural exit. When you have the Nasdaq hitting records and China tech hitting multi-year lows, the trend is your friend until it ends, and right now, the friend is very much elsewhere.

Tom Alright, but check this out. Even traditional tech leaders like N-T-T are being disrupted by the A-I boom. Nikkei is reporting that Nvidia is actually challenging N-T-T's lead in optical data networks. Nvidia's networking solutions are just eating everyone's lunch.

Marie Wait—wait a second. N-T-T is at fifty-two-week lows while Nvidia is up forty-six percent from its low? That is a total regime shift in the networking space.

Tom Exactly.

Gerald One hundred percent.

Marie That's it.

Gerald pff, okay. Only Tom could turn a story about traditional networking being crushed into a reason to buy more Nvidia. But he is not wrong—the momentum there is just relentless.

Marie Look, to wrap all this up, our view is that the market is pricing in this perfect soft landing in credit but totally ignoring the rate trap in bonds. The smart play seems to be a dispersion trade: you go long the US A-I winners like Nvidia and Meta, and you go short the crowded longs that have run too far, like those health insurers and the long-bond ETF.

Tom Okay sure, but the bear case is that if growth actually slows down, those bond yields will fall for real, and my T-L-T call from yesterday—which is up another two percent by the way—will actually look brilliant.

Gerald Right, and that is the risk. Also, notice that nobody is talking about the dollar today. If the dollar stays strong, it is going to keep crushing those emerging market assets like the China ETF. The silence on the greenback is actually deafening.

Marie alright, alright — before we get too deep into the macro weeds, just a quick reminder that none of this is investment advice. We are just three friends talking about the markets.

Tom And if you want to see the charts that back up everything we just talked about, hit follow on Spotify or check out investment flash dot com for the full digest.

Gerald Fair enough. We will be watching those fertilizer shipments through the strait to see if the MarketWatch take holds water.

Marie We will see you for tomorrow's London Edition at seven-thirty a.m. London time.

Tom See ya tomorrow, buddy!