To which we responded, "While we're long term bond bears, the 30 year yield shooting north of 5% is too great a risk for the central planners to not exercise the few powerful cards they still hold."
And posted the following chart:
Though the catalysts would be a MENA meltdown, then Tsunami fallout, followed by a PIGGS rout, indeed, February 9 was the high of the rally in yields. Today the 30 Year hit the downside target, albeit two weeks late according to our crude cycle analysis:
While we might see a capitulation dip to 3.60% or thereabouts in the coming days, we suspect the intermediate term trend will soon turn upwards. The question then becomes when (not whether) the three decade secular bear trend in yields (bull trend in bonds) officially ends with a definitive break of the highlighted downward trend channel. It might be as soon as the end of 2011.
I'd love to help you with this one but I certainly can't say I understand the first thing about technical analysis. Fundamentally, however, the picture looks fairly grim.
ReplyDeleteThe TLT has been bounded in the post-crisis epoch at a 106 handle, which it approached but did not breach yesterday and this morning. With the FLAT re-entering its lifetime high range above $52.50 (finally!), and the STPP inversely entering its life lows, taking profits in flatteners looks prudent here.
ReplyDeleteThe bottom of the trend channel in the lower chart leaves a 32.00 print in play for the remainder of the EU soap opera, and would be a reasonable point at which to consider adding some short-term TBT to a pivot into longer-term steepeners. Unless the Bernanke decides to Breathe The Words, in which case hastier entries into those positions would look considerably more attractive.
If the second leg of the cyan line in the lower chart begins to play out through the rest of Q3+4, the FOMC's option for Operation Twist II, a move toward the longer end, would also become more likely; insanity obeying as it does its own internal rules of logic. Since the FOMC is stuck in the stupidity loop of jamming the same ragged bill into the soda pop machine which keeps rejecting it, an OTII announcement would also seem to signal an opportune selling moment for longer dated Ts.
Well, we hit 3.501% yesterday, taking out the September low by a hair. But on today's [for all intents and purposes] failed bond auction, we're up 29 bps, putting in what should be a nasty looking hammer on the weekly, provided equities cooperate tomorrow and avoid the Friday bootcrush.
ReplyDelete