THEME: INFLATION
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``The greater wall of worry here for the bond market is the Fed cycle, potential inflation risk, and the market interest-rate adjustment that's likely incomplete and obviously to higher rates,'' said Robert Podorefsky, interest-rate strategist for global derivative products at Bank of America in Boston.

Well, this comment is consensus, and well, a little too obvious.
What is going on is that the world is anchored to an environment of higher rates. This is a behavioral finance phenomena. In other words, because the bulk of active investors have lived through times of higher rates, we simply see the current period as aberrant, so we expect bonds to crash back to normal levels.

This may be flawed thinking. Whereas Americans see higher rates as normal, for over 10 years now the Japanese see low rates as normal. Their aging population and lack of population replenishment coupled with a bubble have driven JGB yields to permanently low levels.

Given that the US has similar demographic issues, I think we are going to experience the same thing.

Also, sentiment readings are as bearish on interest rates as they were in the beginning of 2003, right before a major rally in bonds.

TRADE: buy bonds, buy REITs