Adding to the notion of equities being in a corrective phase, bonds have stubbornly refused to go quietly into the night. Unlike in 2008, TLT has not collapsed after a sharp run up. Instead. there was a bid for Treasuries last week after the recent pullback. I am more curious than anything else to see whether bonds will seemingly defy the odds and catch another rally.
Stocks are headed into a difficult period of the year, in terms of seasonality. Then again, we might be getting a front-run of the “sell in May” phenomenon, as seasonal trends might be too obvious now after crashes each of the past two summers. Put another way, bonds have the stars aligned for another push higher here. Just as significant, though, is the idea that if they cannot muster another rally then I suspect that will be the tip-off that the winds truly have changed.
_________________________________
all eyez on TLTeezy
During the recent run up in equities the long bond collapsed but it gave no indication that the party was over until equities were well into their recent bout of correcting. If anything, the treasury market has been sitting on its hands half way through the current correction and has only recently woken up to the fact that there’s real market uncertainty. As a leading indicator it didn’t work. It might be that any long bond action is now skewed by uncertainty over operation twist – if the Fed rebalances hundreds of billions into a more normal allocation model, then much of the support for the TLT holdings will disappear. No one in the treasury market wants to be the last one holding the bag… and if recent Fed announcements are to be believed, then maybe the bag and contents are about to be dropped. This “explanation” dovetails nicely with a variety of other perceived factors and probably has a chance of achieving the status of “accepted truth”. Right now its up to the contrarians to reinterpret the money supply/velocity data and make the current yield (TYX) look attractive – anyone have a lead on their story?
For the fundamental case for lower yields on the long end:
http://www.hoisingtonmgt.com/pdf/HIM2011Q4NP.pdf
They have sent out the first quarter update by e-mail; it should be posted at their website soon.