MW A bond bear thinks battered Treasurys could see a year-end bounce

By Joy Wiltermuth

Investors could see a 'right-now' trading opportunity take shape in long-term Treasury bonds

Long-term Treasury bonds have been through several brutal years, but a "right-now" trading opportunity could take shape in the seasonally favorable year-end period, according to Jay Kaeppel, a senior research analyst at SentimenTrader.

"From an investing point of view, I have been bearish on long-term Treasury bonds (which are the purest play on interest-rate trends) and, importantly, remain so," Kaeppel said in a Monday client note.

The below chart tracks price action in the popular iShares 20+ Year Treasury Bond ETF TLT, showing its shares down more than 40% since March 2020.

Long-term bond yields have climbed on jitters around the U.S. presidential election, deficit concerns and favorable economic data that could make it tough for the Federal Reserve to significantly lower its policy rate from its current 4.5% to 4.75% range, after it cut rates at both its September and November meetings.

While not looking to make a significant long-term investment or commitment to long-term Treasurys, Kaeppe said that when it comes to "investing" versus "trading," there could be potential opportunity for investors to profit in the coming months "from at least a short- to intermediate-term rally" in prices of longer-duration Treasurys.

Below is his chart showing the typical annual seasonal upswing in prices for longer-term Treasurys in the "TLT" fund, when looking at the final trading days of each year since the index was created in 2002.

Kaeppel's tally shows TLT rose 17 times and fell five times during its roughly two decades in existence, when looking at each year's 218th through 244th trading days.

The average gain for the fund was 5.1% in up years and a 2.7% decline in years that it fell.

"Based on seasonality, one can argue that long-term Treasury bonds 'may' be poised for a meaningful bounce," he wrote.

However, seasonality only represents one factor and "is best used in conjunction with price action," he added, while warning that the "overall environment may still be unfavorable for long-term bonds."

The 30-year Treasury yield BX:TMUBMUSD30Y was at 4.544% on Friday, while the 10-year rate BX:TMUBMUSD10Y was at 4.341% and nearly 70 basis points above its one-year low set in mid-September, according to Dow Jones Market Data.

-Joy Wiltermuth

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November 11, 2024 14:53 ET (19:53 GMT)

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