Chart of the Day – $TLT: Bond Sanctum of Solace

by Enis November 26, 2014 11:30 am • Chart of the Day• Commentary

TLT has actually outperformed SPY in 2014. That’s quite a feat considering we’ve had another double digit percentage gain year-to-date for the S&P 500 index.  TLT has been in a very steady uptrend since its 52 week low on Dec. 31, 2013, and is up nearly 20% year-to-date:

TLT daily chart, 50 day ma in pink, 200 day ma in yellow, courtesy of Bloomberg
TLT daily chart, 50 day ma in pink, 200 day ma in yellow, courtesy of Bloomberg

Treasuries have held up especially well in the past month even as risk assets rallied aggressively.  After a very tight range in late October and November, TLT broke above $120 convincingly yesterday, and is within 5% of the intraday high of $127.68 from the spike move on Oct. 15th.

While it seems obvious in retrospect that the Fed’s ownership of more than 50% of certain tranches of long-term Treasuries has been a major factor in the overall rally, many investors were bearish on Treasuries at the start of 2014 even with ongoing Fed QE.  Even with QE past us, Treasuries have maintained their bid, part of a government bond rally that continues around the world.

At this juncture, it’s tough to glean any sort of economic message from the behavior of government bonds.  The involvement of central banks is certainly a factor.  Aside from that, some traders argue that lower long-term rates are a sign of potential deflation, while others argue that it’s simply a case of supply and demand, with central banks the largest source of demand.

Regardless of the possible reasons, the uptrend in Treasuries remains alive and well.  The intraday high in TLT from mid-October of $127.68 will be the spot to watch for potential resistance in the coming weeks.