Chart of the Day – $TLT Breakdown For Real?

by Enis May 10, 2013 2:07 pm • Commentary

10 year U.S. Treasury yields are 27 basis points in the past 6 trading days, from 1.63% to 1.9%, which is a large move for the government bond market.  The strong jobs report was the real catalyst, but the move lower in Treasuries has continued this week.

The debate over the long-term direction of Treasuries has heated up.  Bill Gross made some headlines this morning with the following tweet:


Gross: The secular 30-yr bull market in bonds likely ended 4/29/2013. PIMCO can help you navigate a likely lower return 2 – 3% future.

In contrast, Jeff Gundlach has said that he’s buying Treasuries and selling risk assets, despite the low yields.  Two heavyweights for sure in the fixed income world, with opposing views on the next direction.

Looking at the chart of TLT as a proxy for government bonds, the 1 year daily shows a clear series of lower highs and lower lows, and the 200 day moving average is now declining.  This chart paints the negative picture:

TLT 1 year chart, Courtesy of Bloomberg
TLT 1 year chart, Courtesy of Bloomberg

On the long-term chart, the uptrend since 2011 has been broken, but the real long-term support level for $TLT is around $110:

TLT 5 year weekly chart, Courtesy of Bloomberg
TLT 5 year weekly chart, Courtesy of Bloomberg

A break of 110 would give me the confidence to say that the bond bull market is likely over.  At current levels though, I think it’s still unclear.

In the short-term, the levels to watch going forward are around 114.50, the prior low, and 124.50, the recent high.  I expect rangebound price action between those two areas, and no imminent fireworks, but a breach of either level and I’d change my mind.