The recent bond market selloff that started in the last day of 2012 has resulted in a 4.35% decline in the price of TLT in just three trading days. This is reminiscent of the 2009 bond market decline that marked the beginning of a 70 basis point rise in the 10-year Note yield. Is this a replay of the 2009 decline?
The above chart shows the distinct occasions when there was a 3-day decline of more than 4.3% in the price of TLT since inception. There were 14 such occasions as marked by the red arrows on the chart and since 07/31/2002 the first was on 09/22/2008:
The drop of -7.01% on 01/05/2009 is interesting because it marked a 70 basis point decline in the yield of the 10-year Note in a bear market that lasted several months. On the other hand, there were two such drops in a bull market during 2011. Thus, it is hard to say from a limited number of observation whether this is a replay of the 2009 drop but if the decline continues a few more days, the probability for that will increase.
TLT is now oversold and near a crucial support area:
While prices are still above the longer-term up-trendline, $115 marks a very crucial support area and any decisive break below it may signal a decline towards $100.
Disclosure: no relevant positions at the time of this post
Charting program: Amibroker (Charts created with AmiBroker – advanced charting and technical analysis software. http://www.amibroker.com/”)