Kevin Zhao, a portfolio manager at UBS Asset Management, plans to short U.S. Treasury bonds as U.S. economic growth outpaces Europe [1].
This move signals a shift in sentiment among major institutional investors who typically view government debt as a primary hedge against volatility. If a robust economy diminishes the need for safe-haven assets, it could lead to significant price volatility in the global bond market.
Zhao is betting that the strength of the U.S. economy will make Treasuries less attractive to investors [1]. This strategy involves taking a short position, which profits if the price of the bonds falls. Zhao said he is targeting an entry yield for this short position below 4.3% [2].
The strategy comes as Zhao's fund has seen significant success this year. Reports indicate that his fund has outperformed 90% of its peers in 2026 [2].
Treasury bonds are often bought during times of global instability or economic slowdowns. However, when growth remains strong, investors may pivot toward higher-yield assets, reducing the demand for the perceived safety of government debt [1].
Zhao's approach reflects a broader analysis of the divergent growth paths between the U.S. and European markets [1]. By shorting these bonds, he is positioning his portfolio to benefit from a scenario where the U.S. continues to exhibit economic resilience that outweighs the traditional appeal of safe-haven assets.
“Kevin Zhao plans to short U.S. Treasury bonds.”
This move indicates a growing confidence in U.S. economic exceptionalism relative to Europe. When high-profile managers short Treasuries, they are essentially betting that the 'fear trade' is over and that economic growth will drive interest rates higher or prices lower, potentially increasing borrowing costs for the U.S. government.
