Treasuries and Municipal Bonds Fall While Yields Rise

Is this the real thing, i.e. the start of a bear market in bonds? Based on the recent intense media coverage of the rush to bond funds and away from the stock market, it appears that the timing if perfect. However, when there is a single player in a game with theoretically unlimited bankroll, the media indicator as well as any other indicator are useless because, eventually, yields will forcefully drop to their target level.

Unless of course the major player (FED) has decided to allow a small rise in yields to curb stock market outflows. This game is very complicated and if you do not know the motives and models (timing) followed by the large players you have to resort to realizations only. If you try to go beyond simple realization, you are risking too much. Can the FED support a rise in stocks and bonds at the same time given their negative correlation? I tend to believe that this is not possible but I have seen weird things happening in the markets over the years like for example important correlations breaking down fast.

TNX_20121217

The above chart of 10-Year Note yields shows that in the last 7 trading days there was a rise of about 16 basis points, or about 10%. The yield is now above its 200-day simple moving average. The average violation can be also noticed on the TLT chart:

TLT_20121217

TLT is still not oversold with a RSI(14) at 37.17. Prices have fallen below the 200-day moving average and the medium-term up-trend line as shown on the chart above.

MUB, the ETF tracking municipal bonds is down almost $4 in 12 trading days from its recent highs due to talk about a cap on tax exemption. MUB is now way oversold and a bounce back should be expected soon:

MUB_20121217

Disclosure: no relevant position at the time of this post and no plans to initiate any positions within the next 72 hours.. 

Charting program: Amibroker (Charts created with AmiBroker – advanced charting and technical analysis software. http://www.amibroker.com/”) 

Disclaimer

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