Long Bond Breaks Support
Wednesday, October 27, 2010 at 05:31PM With QE2 on the way, there are a contingent of investors who believe that even with interest rates near record low levels, long-term US Treasuries are a can't lose proposition. The argument goes that if the economy is weak, Treasuries will rally, and if the economy stabilizes or picks up, purchases by the Fed will support prices. While the argument sounds good in theory, those buying Treasuries based on this logic have been losing. The chart below shows the performance of US long-term Treasuries over the last six months. Since their peak in August, they have declined over 5%, and just in the last two days they've broken below levels that had been acting as short-term support.
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Reader Comments (3)
And concurrent with this breakdown we've seen the breakout in TYX, the 30 yr Tsy yield tracking symbol, as well as a breakout in TBT, the ProShares Ultra Short 20+ Yr Tsy ETF. Who would think you could make money shorting the long Tsy with the govt buying $500B to eventually $1T of Tsy's? Currents in the global markets flow where they want to flow.
Your chart is misleading because it does not take account into the roll in the futures. The low in the december contract was 129-05 on the 13th of September which is still higher than the current trading. Still it could break lower eventually but that is 1 big figure away.
When the Government thinks it can control free markets that are 100 times the size of their ability to do so, they usually fail. Amazing that Bernanke would even contemplate QE2, 3, or 4, but he has some misguided belief that it is his civic duty to do so as the Public is ready to lynch the free-spending Congress at the polls. How much Treasury debt, of ever shorter maturities requiring constant refunding, is out there and what percentage does $1 Trillion of QE2 really represent??? Size means everything in debt markets and Bernanke thinks he has a bazooka but he really only has a pea-shooter. THE BOND VIGILANTES ARE BACK AND READY TO PUNISH THE U.S. TREASURY MARKET AND RESULTANTLY THE U.S. DOLLAR. Printing money never solved a Debt Collapse in the last 2000 years and isn't going to solve this one! Get out while you can!!! Sage of Wexford