Why Not Be Bullish on Treasuries?

 | Apr 09, 2014 | 11:00 AM EDT  | Comments
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TLT

Being bullish on Treasuries has been an unpopular stance for quite some time. In fact, anybody willing to publicly pledge support for the low-yielding, government-manipulated securities has been an easy target of social media ambushing (unfortunately, I speak from experience). Yet, from a trading standpoint, being a bull hasn't been such a bad proposition for anyone willing to play against the grain.

The iShares 20+ Year Treasury Bond Fund (TLT) is up nearly 7.5% in 2014 (before considering the meager interest earned), and for those trading the futures-market counterparts, the 30-Year Treasury Bond Futures (ZB) and the 10-Year Treasury Note Futures (ZN), the gain is closer to 5% and 3%, respectively. We realize this is chump-change relative to the 2013 days of high-flying equities, but should the bull market in stocks falter, the Treasury market will see a substantial jolt.

Source: QST/Barchart.com 

For instance, from late summer 2011 through late fall of the same year, the S&P 500 suffered an approximate 20% correction. During that same time, the Treasury market rallied in excess of 30%. For full disclosure, we arrived at this figure via TLT exchange-traded fund data because the futures price changes account for contract rollovers and other factors that might distort percentage changes over longer periods.

Nevertheless, it is clear that if the seemingly endless bull market in stocks loses footing, the Treasury market could be a direct beneficiary. After all, the Federal Reserve might not be buying Treasuries as heavily as it once was, but it is still a big buyer.

Also, as we learned from the negative interest rates in 2008, when investors panic, yield is inconsequential. It is worth a moderate speculative play, which also acts as a hedge against the average equity portfolio.

Source: QST/Barchart.com

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