The little monkey brain that nature created for us acts in mysterious ways. After discussing the recent directional change U.S. treasuries this morning, I began "seeing" more stories about the U.S. treasury market. Strangely still, an old colleague, unprovoked, made an off-the-cuff recommendation of buying into the Proshares Trust Short 20+ year Treasury bond fund (ticker TBF).
The chart above is for the TBF, essentially the inverse of the price chart of the IShares Trust Barclays 7-10 year Treasury fund (ticker IEF) that I discussed earlier this morning. You would expect this considering the TBF is an unlevered short fund of the long-end of the treasury curve. That said, the price chart of the TBF is actually more interesting, to a certain degree, than the IEF. The MACD, albeit still negative, is rising on the TBF. Ditto for the A/D line and the RSI, all suggesting a potential trend change and rising investor support. In addition, the price increase off the July 25th bottom has occurred on increasing volume, while the volume/price characteristics suggest a rise to, at least, $30. This price would correspond to about the $107 price level on the IEF. I think these price levels will be where directional information is released.
I also think that any thoughts on the direction of the Treasury markets (and probably the markets in general) should be thought of in a few different contexts. First, as long as the U.S. is considered a safe haven harbor in the economic storm, there will be demand for treasuries. However, there is also structural selling pressures that are building, and could result in lower prices (higher yields). This being one of the largest, an excerpt from the Social Security Administrations A Summary of the 2012 Annual Reports.
----------------------------------------------------------------------------------------------------------
Social Security’s expenditures exceeded non-interest income in 2010 and 2011, the first such occurrences since 1983, and the Trustees estimate that these expenditures will remain greater than non-interest income throughout the 75-year projection period. The deficit of non-interest income relative to expenditures was about $49 billion in 2010 and $45 billion in 2011, and the Trustees project that it will average about $66 billion between 2012 and 2018 before rising steeply as the economy slows after the recovery is complete and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Redemption of trust fund assets from the General Fund of the Treasury will provide the resources needed to offset the annual cash-flow deficits. Since these redemptions will be less than interest earnings through 2020, nominal trust fund balances will continue to grow. The trust fund ratio, which indicates the number of years of program cost that could be financed solely with current trust fund reserves, peaked in 2008, declined through 2011, and is expected to decline further in future years. After 2020, Treasury will redeem trust fund assets in amounts that exceed interest earnings until exhaustion of trust fund reserves in 2033, three years earlier than projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2086.
----------------------------------------------------------------------------------------------------------
I have not read the entire report, but this sounds like continual selling pressure from the Social Security Trust Fund will be a long-term phenomenon.
The chart above is for the TBF, essentially the inverse of the price chart of the IShares Trust Barclays 7-10 year Treasury fund (ticker IEF) that I discussed earlier this morning. You would expect this considering the TBF is an unlevered short fund of the long-end of the treasury curve. That said, the price chart of the TBF is actually more interesting, to a certain degree, than the IEF. The MACD, albeit still negative, is rising on the TBF. Ditto for the A/D line and the RSI, all suggesting a potential trend change and rising investor support. In addition, the price increase off the July 25th bottom has occurred on increasing volume, while the volume/price characteristics suggest a rise to, at least, $30. This price would correspond to about the $107 price level on the IEF. I think these price levels will be where directional information is released.
I also think that any thoughts on the direction of the Treasury markets (and probably the markets in general) should be thought of in a few different contexts. First, as long as the U.S. is considered a safe haven harbor in the economic storm, there will be demand for treasuries. However, there is also structural selling pressures that are building, and could result in lower prices (higher yields). This being one of the largest, an excerpt from the Social Security Administrations A Summary of the 2012 Annual Reports.
----------------------------------------------------------------------------------------------------------
Social Security’s expenditures exceeded non-interest income in 2010 and 2011, the first such occurrences since 1983, and the Trustees estimate that these expenditures will remain greater than non-interest income throughout the 75-year projection period. The deficit of non-interest income relative to expenditures was about $49 billion in 2010 and $45 billion in 2011, and the Trustees project that it will average about $66 billion between 2012 and 2018 before rising steeply as the economy slows after the recovery is complete and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Redemption of trust fund assets from the General Fund of the Treasury will provide the resources needed to offset the annual cash-flow deficits. Since these redemptions will be less than interest earnings through 2020, nominal trust fund balances will continue to grow. The trust fund ratio, which indicates the number of years of program cost that could be financed solely with current trust fund reserves, peaked in 2008, declined through 2011, and is expected to decline further in future years. After 2020, Treasury will redeem trust fund assets in amounts that exceed interest earnings until exhaustion of trust fund reserves in 2033, three years earlier than projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2086.
----------------------------------------------------------------------------------------------------------
I have not read the entire report, but this sounds like continual selling pressure from the Social Security Trust Fund will be a long-term phenomenon.
No comments:
Post a Comment