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Bond Market: Is the TLT Breakdown for Real?

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Heavyweights in the fixed income world offer opposing views on the next direction of the bond market.

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Ten-year US Treasury yields rose 27 basis points in the past six trading days, from 1.63% to 1.9%, which is a large move for the government bond market. The strong jobs report was the real catalyst, but the move lower in Treasuries has continued this week.

The debate over the long-term direction of Treasuries has heated up. Bill Gross made some headlines this morning with the following tweet:

PIMCO @PIMCO
Gross: The secular 30-yr bull market in bonds likely ended 4/29/2013. PIMCO can help you navigate a likely lower return 2 – 3% future.

In contrast, Jeff Gundlach has said that he's buying Treasuries and selling risk assets, despite the low yields. Two heavyweights for sure in the fixed income world, with opposing views on the next direction.

Looking at the chart of the iShares Barclays 20+ Year Treasury Bond (NYSEARCA:TLT) as a proxy for government bonds, the one-year daily chart shows a clear series of lower highs and lower lows, and the 200-day moving average is now declining. This chart paints the negative picture:


TLT one-year chart, Courtesy of Bloomberg
Click to enlarge
On the long-term chart, the uptrend since 2011 has been broken, but the real long-term support level for TLT is around $110:


TLT five-year weekly chart, Courtesy of Bloomberg
Click to enlarge
A break of 110 would give me the confidence to say that the bond bull market is likely over. At current levels, though, I think it's still unclear.

In the short term, the levels to watch going forward are around 114.50, the prior low, and 124.50, the recent high. I expect range-bound price action between those two areas, and no imminent fireworks, but if a breach of either level occurs, I'd change my mind.

This item by Enis Taner was originally published on RiskReversal.com.

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No positions in stocks mentioned.
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