A SEASONAL PEAK IN YIELDS?
Excellent data out of David Rosenberg which matches with my unwind of the “bond trade of the year”:
This may sound uncanny, but in four of the past five years, we saw the yield on the 10-year Treasury note hit the peak right in June, and while the experts each time were lamenting about inflation, fiscal policy, growth and beta-assets, not to mention the oft-called-for end of the secular bull market in bonds, the second quarter selloff that culminated in a classic blow off in June proved to be a great buying opportunity.
Consider:
• June 14th, 2004: 4.89%. The 10-year note closed the year at 4.24%.
• June 26th, 2006: 5.25%. The 10-year note closed the year at 4.71%.
• June 12th, 2007: 5.26%. The 10-year note closed the year at 4.04%.
• June 13th, 2008: 4.27%: The 10-year note closed the year at 2.25%.But as the data above illustrate, after the June peak in yields, the 10-year note, on average, went on to rally 111 basis points (in 2005, it did look as though the bond market was looking to peak in terms of yield into June, but then we had the volatility amidst the Katrina hurricane, which begat a quick rally and then a huge selloff during the fall). So we should be seeing a nice little bond rally take hold in the second half of the year if this pattern reasserts itself.
Source: Gluskin Sheff
* Long U.S. Treasuries
I bought TLT on Friday. Risky, but a number of things are telling me the dollar and T-bills will bounce. I’m even thinking of putting on Julian Robertson’s steepener trade–links around the web have described this–by buying SHY and shorting IEH.
For now, I’m just going to see if I can make a few easy points on TLT.
What about buying puts on TBT, that way you can also take advantage of the inherent decay in the ultrashort?
I don’t trade options. Not set up for it, and I’ve never really wrapped my head around it. I’m not a full-time trader, and just making 1 or two trades a week takes up enough time in research and takes away from my real career. I’ve contemplated shorting the ultras, but haven’t done it. It seems risky to me, as these things tend to spike–and when they go against you, they go heavily against you. I’m not sure that there’s not another leg down in TLT, to say, 85 or even 80. I would double down in that instance and wait for the retrace. So if you give it a go, let me know. Maybe it’s an even better bet against the triple bull/bears. The decay is egregious on those.