About Me

Retired chief investment officer and former NYSE firm partner with 40 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 !!!

Monday, April 28, 2014

Long Treasury Bond Yield %

My main message on the long guy for 2013 was that the run up in the yield was way too
rapid. Players received another warning at year's end when the long T failed to take out
the long term downtrend in yield at 4%. There has been a nice rally in the long bond this
year, with the yield coming down from the 3.95% level to 3.45%. $TYX

The chart shows an important and longstanding fact. When the yield travels too far up or
down from its 200 day m/a, count on a reversal before long. Spreads of 50 basis point often
signal it is time to begin to watch for a reversal in trend. Note that now the long T yield has
moved inside the 200 day m/a. This suggests that the risk to long positions in the bond has
begun to rise.

Note as well the red horizontal line on the chart. In this era of ZIRP and low inflation, I have
used the 3% line to sell long side trades and leave a couple of $ on the table. The green
horizontal line at 3.50% is appropriate for longer term players in this era. It warns the yield
is too low and the price too high to warrant long term positions given that  the ZIRP / low
inflation era is likely to have a rather limited duration.

I use the combined momentum of industrial output and sensitive materials prices to provide
a yield directional indicator for the long bond. This indicator has been quiescent since early
2012 and has only just started to perk up again. With better output growth and some firming
of industrial materials prices in evidence, the long T yield may begin to reverse to the upside
before long.

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