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The Technical Case for the TBT

Louise Yamada, one of the most widely followed technical analysts in the market, says the 29 year bull market in Treasury bonds is coming to a close.

 Looking at the 200 year history of interest rates in the US, such bull markets are historically 22-37 years in length, and this one is definitely looking long in the tooth. Although doubters insist that you’ll never get a collapse in bonds in a deflationary environment, Louise says that all bond peaks occur in such conditions. Yields show prolonged, saucer like bottoms, much like we are seeing now.

She also says that retail interest in such paper surges when interest rates are at multi decade lows, as we saw clearly with last year’s flow of funds. When foreign buyers lose interest in our debt, the 30 year Treasury bond is the first place their lack of interest will show up. The dirty little secret among central banks these days is that they are all quietly directing new cash flows away from Treasuries into every possible alternative.

The charts for the 30 year are setting up a perfect head and shoulders top, and when the yield breaks through 4.8% to the upside, watch out. The next stop may be 7%. Her advice is that if you are going to stay in the government bond market, shorten your duration as much as possible. If Louise’s scenario plays out, we are about to enter the golden age for the short bond ETF’s.

30 Year T Bond

Courtesy: Mad Hedge Fund Trader




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  • Anonymous on July 30 2010 said:
    I buy the basic premise, but why don't you talk about the shocking underperformance of TBT and all other leveraged, inverse and commodity ETFs? I'm tired of hearing the lame, disingenuous "tracking error" arguments. Tracking error would be symmetrical, but there are no cases of over-performance. If you want to look at TBT from a technical standpoint, you have to look at TLT. What-due to its gross underperformance- appears in TBT as a triple bottom going all the way back to 2008, reads very differently in TLT: a very strong resistance line at 100, broken recently. Last time it was broken in 12/08 TLT went up another 20% (the equivalent of a 40% drop in TBT). How about some suggestions for a better way to short this bubble?

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