About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Tuesday, March 20, 2012

Long Treasury Bond

Back toward the very end of 2011, I put on my "Dutch Uncle" hat to warn of the risks of a long
positions in the 30 yr Treasury for 2012 ( See 12/26, 12/23 posts). Back then, the situation for
the market had not turned negative, but it did so in Jan.

For about 45 years now, it has been my argument that the best determinant for turns and trend in
the Treasury bond market was a combination of the momentum of industrial production plus that
of sensitive materials prices. I use a 6 mo. annualized measure as well as a weekly trend measure.
Both turned up starting in January which signals a rising long T yield. As it has so far turned out,
the rise in yield although a sharp one, has been muted by trader expectations that China -- a very
heavy hitter in the industrial commodites business -- will continue to experience more moderate
production growth. This development has been a drag on the normal sharp seasonal rise in
sensitive materials prices which has become a trademark of China's very large industrial base.
In short, the damage to the Treasury bond could have been far worse.

I am not interested in this market now. I would look to buy the long T about 60 basis points up
in yield as a trade, and since the US is experiencing a more advanced, albeit moderate economic
recovery, I would like to see the yield at a more substantial premium to my very long term
3% inflation benchmark. The chart link gives you the picture.

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