Treasury Yields Rise, Curve Steepens, TLT Rolling Over?

Treasury Bond yields have edged up across the curve, with the largest increases at the long end. Here’s the mid-afternoon data from Bloomberg:

Now a look at the widely held long bond ETF, which has come back into the August gap and is showing signs of rolling over:

(click on chart to enlarge)

Note the volume bars, which show a definite pattern of distribution over the past month. Earlier we observed that ICI data show strong inflows continuing to come into taxable bond funds. It seems this crowded trade may soon run into trouble.

We have been saying bond bulls and gold bulls can’t continue be right at the same time…which one is wrong is beginning to show. So far my gold short isn’t working out, but the long bond short is looking promising. Here is a valuable lesson for trading, as this is a good real life example:

Assuming the trades go as early indications have it, I would close out the short gold position as soon as it reaches my loss limit – this is the sell discipline a trader must have. Then I would let the short bonds position run while it’s going my way. In this way, by cutting the losing trade short and giving the winner room to run, I will make a profit while only getting one out of two calls on the market correct.

Yes, you can be wrong half the time – or more – and still be successful trading the markets.

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