Long Treasury Bond

Short Term Situation
Back on May 29, I opined that a deeply oversold long bond was
setting up for a countertrend long side trade as rapidly falling
bullish advisory sentiment was nearing an attractive contrarian
signal. Well, the market has been choppy since then, but did
afford two nice long side trades. Now, with advisory sentiment
neutral and with the oversold condition greatly reduced, I have
closed out to the sideline.

My 52 wk. rate of change in yield indicator turned negative at
year's end 2008, and did signal a rising yield straight through the
end of 6/09. It has since turned neutral and may even be set to
signal a lower yield straight ahead, as the weakness of the stock
market, coming off a large overbought condition, may aid the T
bond.(Scroll down at link below for the 52 ROC).

On the fundamental side, my indicator of industrial commodites
prices plus production has steadfastly signaled a rising Treasury
yield since early 2009. However, this indicator has leveled off in
recent weeks as sensitive materials prices have eased off a bit
following a strong run. The run up in the long Treasury yield
this year has far outpaced my very broad measures of the
economy / inflation, so that the run in sensitive materials prices
has been the dominant driver this year. Normal mid -year seasonal
weakness in the industrial commodities market did not occur in
2009, but the recent easing up may be a delayed reaction.

In sum, the Treasury bond market is developing a modest positive
bias on price short term, and still remains interesting, although my
original reasons for buying the bond have been satisfied.

Long Term
I have linked to a long term chart of the 30 yr. T bond. The bull
market remains intact and clearly implies that investors are not
yet ready to give up on a low inflation environment. Should
economic recovery proceed and inflation intensify on a cyclical basis,
folks may change their minds and reverse the downtrend in yield.
The bulls remain in charge for now. Treasury yield chart.