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 !!!

Friday, June 05, 2015

Long Treasury Bond

I turned bearish on the long -T around mid - Feb. of this year largely on technical grounds.
The TLT was above 130 at the time and very overbought. It is now at about 117.5 and the
overbought has vanished. TLT

The fundamentals I use to get a good sense of direction for the bond market have eroded only
slightly and current data are insufficient to signal a clear bearish reversal. I conclude that not
only was the market overbought earlier in the year, but that weakness in TLT likely also
reflects expectations that future inflation will strengthen and that the Fed has it strongly in
mind to raise benchmark short term interest rates over the next six to nine months. The sharp
weakness in the TLT price seen since Feb. of 2015 may also involve trader worry over liquidity
in the market once it becomes more apparent the Fed is finally getting ready to pull the trigger
on rates.

From mid - 2012 through late 2013, TLT fell in price from above 120 down to the 97 - 98
area all on expectations that the Fed would end QE 3 and raise short rates. Bond pricing
fundamentals remained positive over this entire period, and when traders realized their fears
were not going to be realized, they took the bond up from the high 90s to above 135 early
this year. The moral here is that we need to say a sustainable step in economic growth
with enough momentum to bring additional pricing pressure and firmer credit demand before
it can be stated with confidence that T - bond price fundamentals have made a decisive
cyclical turn for the worse.

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