{"id":1780,"date":"2013-05-22T18:31:00","date_gmt":"2013-05-22T18:31:00","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=1780"},"modified":"2013-05-22T18:31:00","modified_gmt":"2013-05-22T18:31:00","slug":"5-22-13-treasury-curve-the-last-of-the-mohicans","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=1780","title":{"rendered":"5.22.13: Treasury Curve &#8211; &#8220;The Last of The Mohicans&#8221;"},"content":{"rendered":"<p>Fed Chirman Bernanke fired the first shot across the bow of the Wall Street, consumers and investors today with verbiage like &#8220;possibly&#8221; and &#8220;maybe&#8221; in terms of discussing plans about slowing or reversing the bond purchases currently employed under QE3.<\/p>\n<p>This was the first real warning that the monetary policy COULD be in for a change or revision over the next 6 months.<\/p>\n<p>Remember, since the Nasdaq peaked in March, 2000, the anti-wealth and anti-stock trade has been:<\/p>\n<ul>\n<li>US stock market flat to lower for 13 years, with two vicious bear markets in 2001, 2002, and 2008, 2009;<\/li>\n<li>Gold saw a rally from $300 to $1,800;<\/li>\n<li>Emerging markets were strong through 2007 &#8211; 2008;<\/li>\n<li>The dollar was weaker for that time period;<\/li>\n<li>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;<\/li>\n<li>The stock market leadership we did see was Apple, Amazon, IBM (long all three names);<\/li>\n<\/ul>\n<p>Today, all of these trends have reversed, with a return to a &#8220;risk-on&#8221; market:<\/p>\n<ul>\n<li>SP 500 has broken out to an all-time high;<\/li>\n<li>Gold and commodities have broken down;<\/li>\n<li>The dollar has started to strengthen;<\/li>\n<li>Apple has surely broken down and IBM and Amazon have not kept pace with the SP 500&#8217;s new highs;<\/li>\n<li>Even Japan&#8217;s economy just reported 3.5%\u00a0quarterly GDP growth, as\u00a0it struggles to throw off the deflationary chains\u00a0that have kept it constrained since 1988;<\/li>\n<\/ul>\n<p>All the 13-year trends have reversed EXCEPT, Treasuries have yet to break down.<\/p>\n<p>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 &#8220;broken down&#8221;. Treasuries continue to hang tough but we think it is only a matter of time.<\/p>\n<p>I do think Fed Chair Ben Bernanke&#8217;s testimony today is a way to start prepping the markets for higher rates.<\/p>\n<p>We&#8217;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.<\/p>\n<p>We usually buy and sell slowly over time, never trying to make changes suddenly. If the 10-year Treasury trades over 2.09% we&#8217;ll add more TBF.<\/p>\n<p>&#8212;&#8212;&#8212;&#8212;<\/p>\n<p>The 5\/21\/13 chart was the Aggregate Bond ETF, or the AGG. Despite credit being attractive, we&#8217;d be a seller of AGG over time, given the duration risk, and the low credit spreads. Credit is still thought to be &#8220;cheap&#8221; to Treasuries, but that is relative.<\/p>\n<p>The AGG is currently yielding just over 2%, and has a duration of just under 5.0 years.<\/p>\n<p>&#8212;&#8212;&#8212;&#8211;<\/p>\n<p>Thanks for reading.<\/p>\n<p>Trinity Asset Management, Inc. by:<\/p>\n<p>Brian Gilmartin, CFA<\/p>\n<p>Portfolio manager<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Fed Chirman Bernanke fired the first shot across the bow of the Wall Street, consumers and investors today with verbiage&hellip;<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[63,12,62],"tags":[],"class_list":["post-1780","post","type-post","status-publish","format-standard","hentry","category-agg","category-bond-funds","category-tbf-inverse-treasury"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/1780","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1780"}],"version-history":[{"count":6,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/1780\/revisions"}],"predecessor-version":[{"id":1786,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/1780\/revisions\/1786"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1780"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1780"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1780"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}