My weekly fundamental indicator for the Treasury bond suggests mild price weakness
for the year to date. The bond has been swept lower in price since late last year with the
heftiest part of the decline coming since the late spring when the Fed began to talk about
curtailing the growth of the large QE program. Market players fear the loss of a large
bid the under the market if the Fed tapers, and have been buying into the idea that the
economy should accelerate ahead. The 91 day Bill has stayed near zero and inflation
pressure has been mild, but the yield curve has steepened sharply as investors prepare
for the return to a faster growth environment.
From a technical perspective the bond is deeply oversold relative to its 40 wk. m/a and
bond advisory bullish sentiment has been evaporating rapidly $USB Chart With the next
Fed policy meeting due up in but a few days, and bearish bond sentiment as high as its been
since early 2011, there could be a quick long side trade here if the Fed skips the taper and
focuses on an economy which has yet to exhibit the sort of balanced growth envisioned in
their forecast. Moreover, if the Fed, under political pressure, decides to curb the QE program
and investors review the Fed's comments and decide the action is premature, the bond price
could benefit anyway. Keep an eye out.
- Peter Richardson
- 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 !!!