Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
There has been a lot of talk since Tuesday afternoon of the “great bond selloff”… this started post FOMC meeting and supposedly was due to the Fed’s “upgrade” of the economy in the statement. The same upgrade that will do little to stop them from continuing a new round of easing once Operation Twist is over. But it has a bunch of people in a huff.
Short term the move is relatively dramatic for such a large and deep market. I will use iShares Barclays 20+ Year Treasury Bond (TLT) ETF to demonstrate but there are any number of maturities I could use; this is just a widely used instrument so a good example. Looking at a 4 month chart, a big change appears afoot.
However, if we pull the chart back some to say 8 months, we simply see the price has moved to the end of a longer term range. Indeed, this ETF is not even at October lows (remember October 2011 was one of the biggest up month’s for equities in many years), not to mention levels it was at last summer.
That said, it’s a sharp move in the span of a few days and since U.S. Treasuries yield so little the losses on the underlying can wipe out gains from interest very quickly. On the flip side, Treasuries were generally an incredibly lucrative asset class in 2011 returning far in excess of equities. So for now, it simply looks like a give back, and not the “bursting of a bond bubble” as many are screaming.
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Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
