Why We Said "Sell Long Bonds" - sell bonds

What a difference one week can make.

Our favorite macro position since August of 2014, Long Bonds (TLT) has consistently outperformed the broader stock market with less volatility. This trend changed last week following President-elect Donald Trump’s victory. The 10-year Treasury yield spiked from 1.72% in the morning following Trump's win to 2.39% today. 

Take at our quantitative model below with the immediate-term “Trade” risk range for the 10-year Treasury yield versus “Trend” and “Tail” lines:

  • Trade (3 weeks or less): 2.01% to 2.42%
  • Trend (3 months or more): 2.04%
  • Tail (3 years or less): 2.31%

At 2.39% today, a bond bull does not like that yields are above the trend and tail line. In other words, the trend has shifted from bearish on yields to bullish (yields up).

The market has been sending a number of conflicting signals since Election Day. In particular, financial markets are suggesting U.S. growth has bottomed as small cap equities surged following Trump's win. In the near term at least and heading into the fourth quarter, this appears to be true (click here for more on why.)

We are advising investors to stay patient right now — to err on the side of caution. Await confirmation of developing market trends. In other words, it’s not a bad idea to seek shelter in cash, so you can take advantage of compelling opportunities which will eventually present themselves.