Early in January as long-dated Treasuries were soaring in price, we noted that big pattern was leading to “Ending Action”. This would be that the bull move that began in December 2013 was heading to a momentum peak. Upon reversal, a bear market could follow. (this missive was sent to subscribers Wed April 22nd)

This was summed up in our January 20th study (Ending Action) that reviewed the history of the bond bull market since the 15 percent yield reached in 1981. Also reviewed were a number of major policy efforts that while earnestly believed ended badly. The main one was the bond buying program that began in the late 1940s. This was the attempt to keep the long rate from rising above 3 percent. This was vigorously touted as “Operation Twist” in the 1960s when the attempt was to keep the rate from rising above 6 percent.

Then there was the lengthy attempt by central bankers to keep the price of gold down. The Bank of England sold the last of its reserve down to the 253 level.

Arbitrary interventions may seem to work in the near term but ultimately fail.

Of course, Europe has defined a new level of arbitrary–fanatical. In what may have been one of the most fabulous spread-trades in sovereign debt history, the German bund yield plunged from 1.95% in December 2013 to 0.056% on April 17th; as the Greek yield jumped from 7.80% to 12.68%.

In a fascinating move, the German yield increased in a couple of steps to .108%, yesterday. Ticked down to .092% earlier today and then jumped to .166%. While the numbers are small the change is distinctive.

Over on the Mediterranean, Greek bonds soared to new highs for the move at 13.62%. That was yesterday, today it is down to 12.70%.

It seems that some spread trades are being unwound.

On the bigger picture, “Ending Action” noted that the Weekly RSI was up to a momentum level seen only three times during the full 33-year-long bull market.

On the near term and earlier today, the ChartWorks updated recent technical moves on the TLT. The initial sell-off was to the appropriate level; as was the rebound. The price seems to be rolling over after a weak test of the high.

Treasury investors should get more defensive and traders could start to play the short side. Yields are at unprecedented levels where, as widely discussed, there is an unprecedented lack of liquidity.

BOB HOYE

INSTITUTIONAL ADVISORS E-MAIL bhoye.institutionaladvisors@telus.net WEBSITE: www.institutionaladvisors.com

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