Right now, the market for long-dated securities seems as alluring as a handsome secret agent. Think: "Bond. Treasury Bond" -- leading role in the Quantum Of (financial) Solace.
So far in 2010, investors have poured $190.7 Billion into bond mutual funds; all the while withdrawing about $7 Billion from stock funds. The one has far outperformed the other, and yields on 30-year Treasury notes stand at their lowest level in 16 months. In the words of one recent news source, "Equities Are Dead, Long Live Bonds" (Telegraph.co.uk)
Yet like any secret agent, the appearance of a bond bull trend may not be reality. After all, it was two short years ago that a similar burst of optimism surrounded the long-term prospects in government-backed certificates. The time was late 2008. US Treasuries enjoyed a 28% year-to-date return VERSUS a 43% decline in the S&P 500. Plus, yields on 10-year and 30-year Treasury notes stood at a 50-year low and all-time record low respectively.
As far as the usual suspects could tell, the flame of grim economic news would continue to ignite demand for safe-haven assets such as bonds. Here, the following news items from October through December 2008 reset the scene:
- "Housing isn't displaying any signs of recovery and equities are weak, so the economic contraction is likely to continue. I'm a bull on treasuries..." (Bloomberg December 18, 2008)
- "Bonds Expected To Benefit In 2009."
- The stage is already set. The global growth environment is going to remain pretty challenging through a good portion of 2009. The flight to safety is really likely to continue to dominate." (Associated Press)
- "There's every reason to think the general tendency for yields globally is to be going lower." (Bloomberg)
Yet -- from their December 18, 2008 peak, bond prices bought a one-way ticket on the nosedive express. In the first month of 2009, US Treasuries suffered their worst annual start in three decades. And, in the FIFTEEN months to follow, yields exploded in a 200% rally to multi-year highs.
In the end, bullishness does not necessarily equal a BULL trend. For analysts of the Wave Principle, the ultimate signature of a rising market is a clearly impulsive Elliott wave structure. This always takes the form of a five-wave move.
And, in the brand-new September 2010 Elliott Wave Financial Forecast,(click on the link to subscribe) our analysts present a similar version of the chart below of the iShares 20+ Yr US Treasury Bond Fund since the December 2008 peak. EWFF's copy contains the Elliott wave labels, and shows whether the bullish extremes are supported by an equally bullish wave pattern.
.GIF)