Long Dated Treasury Bonds - This Market Is Weaker Than a Wet Paper Bag

This Market Is Weaker Than a Wet Paper Bag
By Tom Dyson
Monday, May 4, 2009

Here's the magic number: 124.07. That's the number you need for shorting U.S. government debt.

In my DailyWealth column April 13, I said if the long bond fell below 124.07, it would signal a bond bear market. Well, the long bond closed at 123.26 last Tuesday and is now making new five-month lows…

The "long bond" is the nickname for the 30-year Treasury bond. It's the longest-dated debt instrument the U.S. Treasury issues. And on March 18, the Federal Reserve announced it would buy $300 billion "longer-dated" Treasury bonds.

This was the news the bond bulls had been waiting for. The world's most powerful central bank was going to pump $300 billion into their market over the next six months.

Long-bond investors must have thought they were about to get rich... but the market didn't oblige. There were too many sellers.

To make successful short plays, old-time traders will tell you, "Throw your rocks into the wettest paper bags." The long-bond market is a wet paper bag. The long bond is so weak, not even the Fed's printing press can hold it up.

If you own any long-dated Treasury bonds, sell them now. This market is in danger of imminent collapse. The next major stop for this market is 112.5, the lows of 2008. Take a look…

What to Do When the Treasury Market Falls

Why Bond Prices Will Collapse

To watch the action in the long bond price, use the iShares Barclays 20+ Year Treasury Bond fund. The symbol of this fund is TLT. This fund is a giant basket of long-dated Treasury bonds. It's one of the largest and most liquid ETFs in the world. The movements in this fund represent the movements in the long-bond price.

Right now, TLT trades at about $97. As long as TLT is trading below $100, assume the long bond is in a bear market and the path of resistance leads to lower bond prices.

Good investing,

Tom

P.S. A major decline in the price of the long bond will send interest rates up all over the world... from mortgage rates in Hong Kong to insurance rates in Anchorage. In my next column, I'll tell you how to avoid investments vulnerable to a big decline in the long bond.

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NEW LOWS OF NOTE LAST WEEK

Not many... it's a rally, you know!

Global semiconductor sales slumped 30% in March from a year earlier as the industry continues to suffer through its sharpest downturn in years.

The first quarter's drop was the same, the Semiconductor Industry Association said, as consumer demand for electronics and other products wanes amid the recession. In response, companies making items with semiconductors have slashed their production and supply inventories.

But the month's $14.67 billion in sales for March was up 3.3% from February, with every region of the world except Japan showing growth.

SIA President George Scalise said the "modest" increase "suggests that demand has stabilized somewhat, albeit at substantially lower levels than last year."

– Wall Street Journal

There seems to be no relief for the U.S. automakers.

With Chrysler's bankruptcy filing just a day old, investors are confronting dismal April sales reports.

Ford Motor kicked off the gloomy news with a 31.6% plunge in U.S. sales last month to 134,401, worse than the expected decline of 26%.

Truck sales at Ford slid 33% to 77,435 units, with a 35.8% decrease in sales of the flagship F-Series pickup to 28,757.

– MSN Money

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