The End of the Armageddon Trade

(wsj.com) Heard on the Street

It isn't the beginning of the end. But it may be the end of the beginning. The sharp rise in short-dated government bond yields in recent days around the world marks a shift in investor strategies: the Armageddon trade is being unwound.

Since the start of the year, investors have made huge gains betting on a steepening of government bond yield curves. They bought short-dated government bonds, betting yields would remain at low levels thanks to extremely accommodative monetary policy and continued risk aversion, while shorting longer-dated bonds, expecting yields would rise due to fears about inflation, massive government bond supply and fiscal deficits -- a trade known as a bear steepener.

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