67 Days Later (Musical Tribute)

March 29, 2012
Treasuries Could Plummet 18% (Or More) Over The Next 2 Months

Based on the latest fund flow data from Lipper Research, many investors remain enamored with long-term bonds.... But not every investor is clueless.

In fact, I’m convinced we’re on the cusp of a massive exodus out of U.S. Treasury bonds.

If we use these two corrections as a historical guide, the current selloff could last another 67 days and lead to an additional 17.6% decline in prices.

In hindsight, it is the yield that fell (from 2.93% to 2.17%). That's 15.2% less interest over the life of the bond. Those shorting the bond therefore felt a world of pain (bond prices move inversely to bond yields).

If you’re reluctant to embrace the improving economic picture in the United States because of the threats posed by ongoing financial issues in Europe and an apparent slowdown in China, chew on this: The U.S. GDP isn’t overly reliant on either.

The HORDE WAVE is coming to eat you! Om nom nom nom!

If we sell short the iShares Barclays 20+ Year Treasury Bond Fund we’re responsible for covering the monthly dividend payments. And the more time that passes, the more the payments will eat into our potential profits.

This is not investment advice. I'm not willing to predict what treasury yields will be 67 days from now, nor can I tell you to 3 decimal places what future returns will be. Not my style! ;)

Source Data:
FRB: Selected Interest Rates
US Treasury: Yield Curve