You heard it here first: The intense focus by the media and Wall
Street on the timing of the Federal Reserve's QE taper is a giant
distraction. And so is the wasted effort of meticulously combing
through the FOMC's meeting minutes. Ignore the noise!
In contrast, the bond market's performance tells us almost
everything we need to know. What's it saying right now?
Despite, the Fed's attempt to keep long-term interest rates from
rising, via its $85 billion of monthly QE Treasury bond purchases,
the 30-year Treasury yield (ChicagoOptions:^TYX) is up almost 30%
over the past year alone. (See chart) Likewise, 30-year Treasury
yields are now back above 3.75% and have jumped the most in
two-months. The trend of higher yields (rates) is here
regardless of what the Fed does or says!
Buyers of long-term Treasuries (like the Fed) beware.
You have already seen the value of your bonds
(NYSEARCA:TLT) erode by roughly 11% over the past year. Is
more pain ahead? When bond yields rise, as they are right now, bond
prices fall. The accompanying chart visually illustrates this
inverse relationship between bond prices and yields along with why
being bearish on long-term Treasury prices has been the right place
The trend of higher yields is nothing new to our readers. We have
alerted readers of falling bond prices multiple times this year and
have been able to get profitable trades in 2x inverse Treasury ETFs
(NYSEARCA:TBT) and related funds that are designed to go up with
bond prices drop. Not only has this major trend been atop of
Investment Theme Report
in the ETF Profit Strategy Newsletter, but it's among this
year's biggest investment trends.
Aside from strategic trades, investors with core bond
(NYSEARCA:AGG) positions as part of a diversified portfolio, will
do best to choose Treasuries (NYSEARCA:IEF) that have
maturities of 10-years or less. (See "Beware the Yield Curve
is Steepening!" August 2013 ETF Profit Strategy Newsletter)
In summary, listen to what the bond market says ahead of what
the Fed says. Why? Because market prices are always a leading
Profit Strategy Newsletter
uses technical, fundamental, and sentiment analysis to keep
investors on the correct side of the markets. We offer
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