Second, how do I explain the differential? I don't bother. Why should I? That's not my job at all. The job of a trader is to make a profit. Period. Everything else is just a sideshow. The rationale for my current bond position is entirely sound in the context of trading, not necessarily so in the world of bond theory -- and it's posted in a previous post to you.
This is a mistake that a LOT of would-be traders make; they trade according to theory as opposed to the immediate practical considerations in a given mkt. It's also a variant of the error of the Left; when mkts don't behave according to their (asinine) theory, they invariably try to bend the mkt to their will via regulation and assorted other crapola.
It's also one of the mistakes that some real-life and quite excellent bond traders made: John Meriwether, Haghani, Hilibrand, McAtee, et al. You remember them, of course. They were once known as Long-Term Capital Management. They stuck to their theoretical models in the face of a changing practical reality in 1998...and they lost on the order of USD 3.5 billion in 90 days' time from July-Sept 1998.
Stick to the real world, and the mkt's perception of it (whether the perception is right or wrong is utterly irrelevat in the short term, btw). Leave the theory to the academics -- that's why they (cough) make the big bucks, right?
I believe it was one of your earlier posts I was referring to when you said:
Prices stable? That's the howler of the year.
Now if you are so sure that SAJ's interpretation of inflation is more accurate than the largest securitize market in the world I suggest you think twice.
Your hubris about trading is the real howler. I have been trading probably longer than you and one thing I know for sure:
Whom the market gods humble they first make proud.
Watch your step buckaroo. I have seen more "brillant" traders than you can ever imagine go down in flames aka John Meriwether, B 52 and Joseph Jett.