Ideas
Long twos, short 20s curve steepener.
Bassman expects the front end of the Treasury curve to fall as the Fed cuts rates, while the long end rises toward his 4.35% 10-year yield target because of massive Treasury supply and fiscal deficits. He implements this as a curve steepener, personally long the front end and short the back end, specifically long two-year Treasuries and short 20-year Treasuries.
Long twos, short 20s curve steepener.
Bassman expects the front end of the Treasury curve to fall as the Fed cuts rates, while the long end rises toward his 4.35% 10-year yield target because of massive Treasury supply and fiscal deficits. He implements this as a curve steepener, personally long the front end and short the back end, specifically long two-year Treasuries and short 20-year Treasuries.
Own gold as fiat currency debasement hedge.
Bassman views gold not as an inflation trade but as an alternative hard currency with no liability and limited annual production. He expects fiscal deficits and fiat debasement to force either default or inflation, and since the U.S. will not default, it will inflate; therefore he recommends a 5-10% long-term allocation to gold and says he has owned it since 2010 without selling.
Passive flows support S&P 500.
Bassman remains bullish on the S&P 500 because 401(k) and passive index flows keep buying equities, especially with fiscal deficits supporting the economy. He advises maxing out 401(k) contributions with roughly 70-80% in SPX, and says until a recession pushes unemployment to around 5%, the passive flow should keep supporting the market.
Top eight benefit from passive flows.
Within the passive-flow equity thesis, Bassman highlights that index money is market-cap weighted, so the top eight companies receive most of the inflows. Because those large companies are relatively inelastic, a given dollar moves their stocks more than smaller companies, creating a repeating pattern where the biggest companies get bigger.
Newly issued agency MBS attractive.
Bassman prefers newly issued agency MBS because they offer a higher yield than investment-grade credit with zero credit risk, roughly 100bp over Treasuries versus 50bp for IG. They behave like a covered call on Treasuries: if rates stay around 3.5-4.5%, investors earn a high coupon with low duration, but if rates fall sharply they are called away and lag long-duration assets. He specifically favors newly issued bonds near par, which have about five-year duration, versus the index's older low-coupon, longer-duration bonds.
Long rate hedge as insurance.
Bassman's interest rate hedge product is a long-dated put option on the 30-year Treasury, with duration around negative 40, designed as cheap insurance if rates rise and bond prices fall. It is a capital-efficient hedge because few dollars are needed relative to positive-duration assets; it also benefits from low implied volatility and has small positive carry because the option premium is deferred and cash collateral earns T-bill yield.
Long Bond Bull for convexity.
Bassman recommends combining a small allocation to the Bond Bull with a high-yield/junk-bond or loan closed-end fund that pays a high coupon with low stated duration. Because such credit products are short a credit option and can fall in price if spreads widen faster than rates fall, he suggests overbuying the Bond Bull relative to the credit index so its positive convexity self-insures the credit risk while retaining the high coupon.
Long Bond Bull for convexity.
Bassman calls the Bond Bull the more interesting side of his long-dated options: it owns calls on the 10-year Treasury expiring in 2032. If the Fed cuts to zero and buys Treasuries in a crisis, rates could fall hard and the option's positive convexity would make it accelerate in value, requiring fewer dollars than long-duration Treasuries or strips and buying back convexity that most yield assets are short.
Front-end rate put ladder trade.
Bassman has a personal trade betting that front-end one- and two-year rates will not rise much or fall much but glide sideways. He put on a zero-cost, levered put ladder: long a 3% put, short a 3.25% put, and short a 3.60% put, expiring in one year, with the interest rate hedge behind it as protection against a Fed hike.
Buy high-quality leveraged income funds.
Bassman likes financial leverage in high-quality front-end income vehicles because Fed cuts should steepen the curve, bringing borrowing costs below investment yields. This includes high-quality BDCs buying first-lien top-of-capital-structure loans at discounts, agency mortgage REITs like Annaly whose coupons look solid as front-end rates fall, municipal closed-end funds trading at 8-12% discounts whose yields should push them toward NAV, and products using 5x two-year and 3x seven-year Treasury futures. He cites ARCC as the biggest and best BDC and notes it has become more interesting as credit concerns have pushed prices down.
Avoid low-quality BDCs and second-tier paper.
Bassman says some large BDCs invest in second-tier paper to get higher yields, but he would not touch them. He prefers lower-yielding, higher-quality BDCs that buy top-of-capital-structure first-lien loans, have pricing power, first look at deals, solid management, and are first in line to get money back.
Short credit via CDX protection.
Bassman is nervous about credit because bankruptcies have risen significantly while public credit spreads remain near record tight levels, partly because private credit is not marked to market. He says he would rather be short than long credit, and his funds are taking the other side by buying CDX protection; with IG spreads in the low 50s and HY in the high 2s/low 3s, hedges are cheap and risk/reward favors short credit, though he does not predict an outright crash.
MLPs offer tax-advantaged income, prefer safer ones.
Bassman favors MLPs as an income vehicle because K-1 tax treatment defers taxes until sale, and many MLPs offer tax-advantaged 8-10% yields. He prefers safer, less levered MLPs with reasonable capex budgets and natural gas exposure, saying he is more interested in income than capital gains at this stage.
Long oil, gas, coal, nuclear.
Bassman likes the energy complex because he does not see how global energy demand can be met over the next decade by wind and solar alone; baseload power will require nuclear, natural gas, oil, and possibly coal. He says he likes oil, is thinking about coal, likes nuclear as a very long-term trade, and prefers natural gas because data centers need an easy power source.
This Monetary Matters video, published January 04, 2026,
features Harley Bassman
discussing SHY, TLT, GLD, SPY, Top eight S&P 500 companies, Newly issued agency MBS, PFIX, 30-year Treasury put options, Bond Bull ETF, High-yield/loan closed-end funds, 10-year Treasury call options (2032 expiry), Front-end Treasury rate put ladder, BIZD, ARCC, Agency mortgage REITs, NLY, XMPT, Leveraged Treasury futures funds, Low-quality BDCs, CDX IG, CDX HY, AMLP, WTI, UNG, Coal sector, URA.
15 trade ideas extracted by AI with direction and confidence scoring.
Speakers:
Harley Bassman
· Tickers:
SHY,
TLT,
GLD,
SPY,
Top eight S&P 500 companies,
Newly issued agency MBS,
PFIX,
30-year Treasury put options,
Bond Bull ETF,
High-yield/loan closed-end funds,
10-year Treasury call options (2032 expiry),
Front-end Treasury rate put ladder,
BIZD,
ARCC,
Agency mortgage REITs,
NLY,
XMPT,
Leveraged Treasury futures funds,
Low-quality BDCs,
CDX IG,
CDX HY,
AMLP,
WTI,
UNG,
Coal sector,
URA
