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Treasury ETFs on the Precipice

tlydon@globaltrend.com (Tom Lydon)

Are Treasury exchange traded funds on the verge of a major technical breakdown?

U.S. government bond ETFs are giving off weak technical signals as markets await the Federal Reserve announcement and President Barack Obama’s State of the Union address.

For example, iShares Barclays 20+ Year Treasury (TLT) was in negative territory along with the S&P 500 and Dow on Tuesday. Stocks and Treasuries have tended to move in opposite directions lately.

Traders trying to guess the next move in stocks closely watch U.S. Treasuries, which are the largest and deepest market in the world. Bonds often sound the alarm before the trouble hits equities.

Treasury ETFs spiked over the summer while riskier assets were crushed on fears the European debt crisis was set to explode.

The iShares Barclays 20+ Year Treasury has traded in a range since September after the ETF hit an all-time high fueled by Eurozone woes, deflation fears and the Fed’s bond buying. However, the fund recently broke below its 200-day moving average. [ETFs That Short U.S. Treasury Bonds]

Nervous investors piled into bond ETFs in 2011. Yet if Treasury yields rise and bond prices fall, it would likely signal investors are growing more optimistic on the global economy and a resolution of Europe’s debt crisis. This increased appetite for risk would be good news for stock-based ETFs. Many investors are hiding out in low-yielding Treasuries and cash.

From a technical perspective, iShares Barclays 20+ Year Treasury is “skating on thin ice,” writes ETF Digest’s Scott Pluschau at The Street.

He points to a developing “head and shoulders” pattern in the bond ETF that could break key support levels.

There are several ETFs that short Treasuries – they rise when bond prices fall. The largest by assets include ProShares UltraShort 20+ Year Treasury (TBT), ProShares UltraShort 7-10 Year Treasury (PST), ProShares Short 20+ Year Treasury (TBF) and Direxion Daily 30-Year Treasury Bear 3X (TMV).

iShares Barclays 20+ Year Treasury