Working Paper 21
The Disinflation Trade: Five Stabilizations and the Anatomy of a Bond Rally
October 2026
Abstract
Five episodes where very high bond yields were followed by credible disinflation: the US 1979-82, Israel 1985, Turkey 2001-04, Brazil 2016-18, India 2013-15. All five shared deeply positive real yields at entry, a newly appointed credible policymaker, and a forcing crisis. Israel killed 445% inflation with GDP still growing. In every case the bond market priced the old regime for years after the pivot, and the entry real yield predicted the size of the rally.