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 !!!

Wednesday, May 13, 2015

Long Treasury Bond

In a Feb. 11, '15 post I argued the long Treasury was too pricey. The TLT ishares 20 yr T
had experienced a nearly parabolic price rise and had moved up to a gaping premium over
its 200 day m/a. I viewed a price of 105 (3.5% yield) as more sensible given how inflation
can fluctuate over the longer run.

the long T price has been in corrective mode since the early part of Feb. of this year and is
now clearly oversold for the short term. TLT shares have actually dropped to a slight discount
to the 200 day m/a for the first time since late 2013 and there may be some shorter term price
support in the $115 - 120 area.

The weakness in TLT for much of this year reflects not only the correction from a glaring
overbought condition but some mild erosion of price direction fundamentals, most notably
a minor bounce in sensitive materials prices paced by a partial recovery in the crude price.
The Fed is holding to its ZIRP, but market players have grown concerned that the central
bank may abandon its policy and push up short rates later in the year. Bond traders are also
starting to worry about liquidity in the market if higher short rates and inflation lead to a rush
for the exits (In the spring of 2013, TLT dropped relatively quickly from the 116 level down
below 100 during the ensuing months).

I need to see quite a bit more of how economic performance unfolds this year before I would
consider a long side Treasury trade, and even then would probably want to wait to see if TLT
can make it back under 105.


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