What If the Next Winning Trade Isn't Tech, but Bonds and Value?
Last weekend I was looking into data of the CFTC COT, and I noticed something that I think deserves more attention than it's getting. On its own, the COT report is just a snapshot of futures positioning, but when you combine it with what is happening across other markets, a pretty interesting picture starts to emerge. I'm beginning to think we're seeing the early stages of a regime shift away from the AI/mega-cap/growth leadership that has dominated the last couple of years, toward longer-duration Treasuries, value stocks, and a much broader market.
The first thing that caught my attention was the positioning in Treasury futures. Asset managers continued to add long exposure, particularly in the long end of the curve. The strongest positioning is in the 30-year Treasury Bond and Ultra Bond contracts. That suggests institutional investors are becoming increasingly comfortable extending duration. Whether that's because they expect lower inflation, slower nominal growth, or simply believe long-term yields have peaked is open to interpretation, but the positioning itself is difficult to ignore. Of course, large institutions can be wrong just like everyone else. However, what makes this more compelling is that the price action has started to confirm the positioning.
One of the charts I've been watching is the TLT/SPY ratio. Rather than focusing on whether TLT is going up in absolute terms, I care more about whether long-duration Treasuries are beginning to outperform equities as you can see below. Over the past few weeks, the ratio has started moving higher and recently broke above its 50-day moving average. By itself that's not enough to call a new trend, but it's the first technical confirmation that the market may be rewarding the same positioning we see in the COT data.
TLT/SPY moving higher and breaking above 50-day moving average
At the same time, the 10-year Treasury yield appears to be losing momentum. After spending many months trading at elevated levels because of the war in Iran, yields have recently started falling from around 4.56% to roughly 4.37%. Probably because a peace deal was in sight. Of course, this is not yet a confirmed long-term downtrend, but it's exactly what you would expect to see if institutional demand for duration is beginning to influence the broader bond market.
If this were happening alongside widening credit spreads, I would interpret it as a classic flight-to-safety trade driven by recession fears. But that's not what we're seeing. As you can see below, the ICE BofA US High Yield Option-Adjusted Spread is sitting near its lowest level of the year and has actually continued to decline over the past few months. That's an important distinction. It suggests the bond market isn't rallying because investors are panicking. Instead, it points toward a much healthier scenario where inflation expectations ease, long-term rates decline, and credit markets remain confident. In other words, a soft-landing narrative rather than an outright risk-off event.
ICE BofA US High Yield Option-Adjusted Spread
What makes this even more interesting is what's happening inside the equity market itself.
For almost two years, performance has been dominated by a very small group of AI-related mega-cap technology companies. But that concentration may finally be starting to unwind. This is visible in the CFTC COT where open interest in the QQQ futures has significantly declined, while exposure to value has remained the same. This is also visible in the VTV/VUG ratio and the RSP/SPY ratio breaking above their 50-day moving averages. To me, this suggests that the average company is beginning to participate again instead of the entire market relying on seven or eight giants to carry the index. These are exactly the types of relative-strength charts I would expect to improve if investors were quietly rotating away from expensive growth stocks toward cheaper value names. Again, none of these charts individually prove anything. But together they begin telling a remarkably consistent story.
VTV/VUG moving higher and breaking above 50-day moving average
RSP/SPY moving higher and breaking above 50-day moving average
That's really the key point I'm trying to make. I'm not arguing that AI is over or that technology is about to collapse. AI will almost certainly remain one of the biggest secular growth themes of this decade. What I'm questioning is whether the extraordinary relative outperformance of a handful of mega-cap growth stocks can continue if long-term yields gradually fall, market breadth improves, and institutional capital starts seeking opportunities elsewhere.
Historically, when inflation moderates without a severe recession, lower discount rates don't necessarily benefit the most expensive growth stocks the most. Quite often they create a much better environment for reasonably valued companies with solid cash flows, strong balance sheets, and lower expectations already priced into their valuations. At the same time, longer-duration Treasuries become increasingly attractive as both an income-producing asset and a potential source of capital appreciation if yields continue to decline.
None of this guarantees that we're entering a new regime. There are still obvious risks. A renewed inflation shock, a continuation of the war in Iran (and the closure of the Straight of Hormuz), higher energy prices, or stronger-than-expected economic growth could easily push long-term yields higher again and invalidate this entire thesis. Likewise, if AI-driven earnings continue to surprise to the upside, growth could easily regain leadership.
But when I step back and look at everything together (i.e. the CFTC positioning, the improvement in TLT/SPY, the declining 10-year yield, tight credit spreads, improving market breadth through RSP/SPY, and the relative strength beginning to emerge in IWD/QQQ and VTV/VUG) it feels like more than just random noise. It looks like several independent markets are starting to tell the same story.
I will be loading up on (calls on) longer-duration bond ETFs and keep adding to value stocks as I think these asset classes may finally have a chance to outperform after spending years in the shadows.
I'd be interested to hear whether anyone else is seeing the same rotation, or if you think these signals are simply coincidental and we're still firmly in the same AI-led growth regime.