Monday, March 25, 2013

Time To Short Treasuries?

There are three data points you might want to consider before deciding to swing at that pitch.

Short Side of Long (with a new publication I recommend reading, here) uses COT data for small speculators to show that they are already way ahead of you. As a group, they are mega short, which has previously been the signal to look long instead.

The March BAML survey (read here) found that a net 53% of fund managers are now underweight bonds, an increase from 47% in February. This is the lowest weighting in treasuries since May 2011, which, as it turns out, also happened to be a good time to get long the bond.

Finally, there is a pronounced seasonal pattern in 10 year yields. In most years, yields start to decline in the second quarter (red arrows). Two of the exceptions came when the SPX formed a major bottom in 2003 and 2009 (blue arrows). The other two exceptions: the tech bubble in 1999, and 2005, a year in which SPX and TLT did absolutely nothing.