Bond Market Review For June 2012

Includes: FLAT, STPP, TBT, TLT
by: Pat Stout

The month of June 2012 saw interest rates move higher across the yield curve. Short-term (1-month to 1-year) interest rates moved 1 to 3 basis points higher. Intermediate-term (2-year to 7-year) interest rates moved 5 to 8 basis points higher; with longer-term (10-year +) yields moving 8 to 11 basis points higher.

The 10-year yield chart for June 2012.

Change in basis points for the month of June.

TLT / FXE Spread chart:


Modestly higher interest rates expected, as there have been a few encouraging headlines hitting the newswire. This could lessen the fear bid in the US Treasury market. Sooner or later investors will switch from not wanting to lose money to wanting to make money.

Encouraging Economic Headlines Seen on June 29, 2012

  • Chicago Purchasing Managers Index 52.9 June vs. 52.5 consensus
  • Chicago PMI Employment Index 60.4 June vs. 57.0 May
  • Chicago Purchasing Managers Production Index 57.0 June vs. 50.0 May

Something to thing about:

What happens if the employment figure to be released Friday July 6th comes in stronger than expected?

What if the purchasing managers index shows strength?

Performance of selected ETFs/ETNs

TBT is the ProShares UltraShort 20+ Year Treasury and should benefit from increasing interest rates.

TLT is the iShares Barclays 20+ Year Treasury and should benefit from declining interest rates.

FLAT is the iPath U.S. Treasury Flattener and should benefit from a flattening of the 10y-2y-yield curve.

STPP is the iPath U.S. Treasury Steepener and should benefit from a steepening of the 10yr-2yr-yield curve.

Selected ETF / ETN Price changes for June 1 to June 29, 2012


62.68 $ June 29

62.79 $ May 31

(0.11) $ Change

(0.18) % Change


$35.60 June 29

$35.35 May 31

0.25 $ Change

0.71 % Change


$125.20 June 29

$127.60 May 31

(2.40) $ Change

(1.88) % Change


$15.84 June 29

$15.45 May 31

0.39 $ Change

2.52 % Change

Source: Yahoo Finance

Feel free to leave a comment. Your feedback is most welcome.

Disclosure: I am long TBT.

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