5.22.13: Treasury Curve – “The Last of The Mohicans”

Fed Chirman Bernanke fired the first shot across the bow of the Wall Street, consumers and investors today with verbiage like “possibly” and “maybe” in terms of discussing plans about slowing or reversing the bond purchases currently employed under QE3.

This was the first real warning that the monetary policy COULD be in for a change or revision over the next 6 months.

Remember, since the Nasdaq peaked in March, 2000, the anti-wealth and anti-stock trade has been:

  • US stock market flat to lower for 13 years, with two vicious bear markets in 2001, 2002, and 2008, 2009;
  • Gold saw a rally from $300 to $1,800;
  • Emerging markets were strong through 2007 – 2008;
  • The dollar was weaker for that time period;
  • The Treasury market saw an incredible rally with the 10-year yield falling from 6.5% to 1.39% from March, 2000 through July, 2012;
  • The stock market leadership we did see was Apple, Amazon, IBM (long all three names);

Today, all of these trends have reversed, with a return to a “risk-on” market:

  • SP 500 has broken out to an all-time high;
  • Gold and commodities have broken down;
  • The dollar has started to strengthen;
  • Apple has surely broken down and IBM and Amazon have not kept pace with the SP 500’s new highs;
  • Even Japan’s economy just reported 3.5% quarterly GDP growth, as it struggles to throw off the deflationary chains that have kept it constrained since 1988;

All the 13-year trends have reversed EXCEPT, Treasuries have yet to break down.

Today, the 10-year Treasury has traded over 2% but it needs to trade over 2.09% and then 2.40% before we can call it “broken down”. Treasuries continue to hang tough but we think it is only a matter of time.

I do think Fed Chair Ben Bernanke’s testimony today is a way to start prepping the markets for higher rates.

We’ve been shedding our investment-grade bond funds and adding to the TBF in bond and balanced accounts. The TBF is an inverse Treasury that will hedge against rising interest rates. Our TBF exposure as a percentage of fixed-income accounts is now between 5% and 20% depending on the account.

We usually buy and sell slowly over time, never trying to make changes suddenly. If the 10-year Treasury trades over 2.09% we’ll add more TBF.


The 5/21/13 chart was the Aggregate Bond ETF, or the AGG. Despite credit being attractive, we’d be a seller of AGG over time, given the duration risk, and the low credit spreads. Credit is still thought to be “cheap” to Treasuries, but that is relative.

The AGG is currently yielding just over 2%, and has a duration of just under 5.0 years.


Thanks for reading.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager






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