Monday, November 23, 2009

The Long Bond: An Interesting Speculation

The single most surprising financial event that could occur soon might well be a significant drop in Treasury rates. A drop in rates would correlate with a rise in the ETF 'TLT', as TLT owns Treasury bonds in the 20+ year maturity range. The chart on TLT is actually promising. Click on it to enlarge; the red line is the simple 50 day moving average.
Since the early June low in price at longer-term support, we see a successful retest of that low in late July, then a pattern of higher highs and higher lows. In addition, the shape of the up and down moves looks reasonably promising, as well.
Meanwhile, stocks made new highs in some indices, but the VIX did not fall to a new low. Is it bottoming, implying a down move for stocks?
TLT opened down Monday but then worked its way higher, very quietly, as gold and stocks took the spotlight. Yours truly went long TLT on the open today. Now, this is in the context of holding lots and lots of gold, to be sure. Nonetheless, the structural bull market in Treasury prices (downtrend in yields) remains in force on the charts. And I believe that we are following the Japanese trajectory. So much lower lolng Treasury rates are possible, even if they make little sense on a total return after likely inflation.
Copyright (C) Long Lake LLC 2009

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