The iShares Barclays 20+ Year Treasury Bond Fund (TLT) fell again in Wednesday’s premarket action and is down more than 7% from its July peak.
Yields on the 10-year Treasury note rose to 1.79%, the highest level since late May .
“When the yield rises, it means the government has to pay a higher interest rate to persuade investors to buy its bonds. That usually happens when investors are feeling confident about the economy and more willing to put their money into stocks instead of bonds,” the Associated Press reported. [Short-Duration Treasury ETF Sees Outflows as Fees Top Yield]
Some traders are positioning for higher yields and lower prices with inverse Treasury ETFs such as ProShares UltraShort 20+ Year Treasury Bond (TBT). [Options Trading ‘Explodes’ in Bearish Treasury Bond ETF]
Treasury yields are creeping higher after being extremely depressed by the Federal Reserve’s commitment to keep rates low, and skittish investors seeking safe havens from Europe’s debt crisis.
“Yes, we are all aware that the Treasury market is a very crowded, dangerous trade, filled with parked funds from overseas investors, and stuffed with former stock-market participants who have given up on equities. But these sentiment gauges, and the miniscule return, have not, and probably are not, the reason why the long end of the curve could be forming a top,” writes Mike Paulenoff at MarketWatch.
“My ‘guess’ is that either the U.S. economy is getting stronger (huh?) — or just the opposite, that the economy is getting much weaker, which will require another round of QE in the form of mortgage buying, not Treasury purchases,” he wrote. [When Rates Rise, Will Investors Bail on Bond ETFs?]
From a technical perspective, the iShares Barclays 20+ Year Treasury Bond Fund (TLT) may fall all the way to its 200-day moving average before finding support, says Michael Harris at the Price Action Lab blog.
“A test of 200-day simple moving average support is quite possible and by that time most late longs will be out and the bond market will have pocketed their losses,” he wrote.
TLT was down 0.9% in premarket trading Wednesday.
iShares Barclays 20+ Year Treasury Bond Fund
Full disclosure: Tom Lydon’s clients own TLT.
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