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Is the Treasury Bull Market Over?

Sep 18, 2012
Ron DeLegge

After QE3 was announced, U.S. Treasury prices sold off hard. Is it the beginning of the end for the rise in bond prices?

The best days for long-term U.S. Treasuries (NYSEARCA:TLT) may be history. That’s what a growing consensus now believes.

Last week’s Federal Reserve announcement that it would initiate QE3 via $40 billion open-ended mortgage bond purchases sent long-term Treasury prices down. Was last week’s Treasury selloff a short-term hiccup or a major trend change?

Over the past five tumultuous years, U.S. Treasuries have been a good investment. Cumulatively, long-term Treasury ETFs have gained +36.89%, while over the same period, the S&P 500 (NYSEARCA:SPY) has declined by -3.52% and commodities (NYSEARCA: GSG) by -27.52%. 

Still, the souring mood towards Treasuries is being reflected in both today’s sentiment and news media. Here are a few recent headlines:

“Long-dated Treasury Face Tougher Days” – Wall Street Journal
“Treasury Cyclicality: The End is Nigh” – Seeking Alpha
“The 30-Year Bond Bull Market is Over” – Felix Zulauf via King World News

            

Despite the gloom, the Fed will continue to buy $45 billion per month in long-dated Treasuries through the end of 2012. Also, there’s still a chance this particular plan could be extended beyond year’s end. (In case you haven’t noticed, the Fed likes extensions.) Lastly, the flight of capital out of European sovereign debt is another big factor.  

The ETF Profit Strategy Newsletter gives key support/resistance levels for high probability trades in U.S. Treasuries along with stocks (NYSEARCA:QQQ), gold (NYSEARCA:IAU) and currencies (NYSEARCA:FXE).

Ultimately, the bull run in Treasuries isn’t over until the market says it’s over.

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