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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 !!!

Wednesday, October 23, 2013

30 Yr. Treasury Bond

Back in a post on 9/15, I argued that the long T- bond was deeply oversold with the
sharp rise in yield % (and consequent price weakness) reflecting the development of a
weak market brought on by concern that an accelerating economy would lead the Fed to
curtail its large bond buying program and remove a large bid under the market.

The yield on the long T has retreated since then and there has been a modest price rally.
There is further potential for the yield % to fall short term because the recent Gov. shutdown
and surprisingly weak employment growth have removed the prospect of a quick end to
the current sizable QE program.

The long side trade since mid - Sep. in the bond has been fairly tame so far. From a yield
perspective, I was thinking the T-bond could fall to about 3.3% and that the price could rise
above the $140 level for a decent profit.  30 Year T-Bond With Price In Top Panel

The key shorter term yield directional fundamental gauge I use is the combined momentum
of industrial production + industrial materials prices. This indicator has actually been on
the weak side since late 2012, and strictly speaking, the yield on the long guy should still
be sitting maybe in the 3.1 - 3.2% range. So, there is still a large premium in the yield to
reflect the consensus expectations that the economy will be growing more rapidly and that
the Fed will eventually have to begin to moderate its bond purchasing programs.

Tricky business. The bond yield can trend strongly for extended periods up or down, but
it is highly unusual for the long T to get so far out ahead of on-the-ground fundamentals.
Treasury players rarely exhibit such longer range confidence. 'End of the nose' is usually
good enough.

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