By Ron DeLegge, Editor
People that piled into long-term Treasuries searching for more yield can't say they weren't warned.
Treasury 10-year notes should yield 3.50% based on growth and inflation forecasts and the impact of the Federal Reserve's asset-purchase program, instead of today's 2.78 percent, JPMorgan executives said in a presentation in London. Benchmark German bund yields should be at 2.20%, versus 1.72%, while similar-maturity U.K. gilts should yield 3.30% instead of 2.82%, the company said.
The 10-year U.S. Treasury yield (^TNX) has soared 72.57% over the past year toward 2.84%, while the price of 7-10 year U.S. Treasury ETFs (NYSEARCA:IEF) has declined 6.93% over that same period.
Another 0.66% rise in yields toward 3.5% as JPMorgan projects would mean serious financial damage for the Federal Reserve and its $2.13 trillion in Treasury holdings along with other Treasury bond owners.
U.S. Treasuries with longer maturities (NYSEARCA:TLT) of 20 years or more have fallen harder versus 10-year bonds over the past year, declining 17.28%. At that rate (pun intended), official bear market territory of 20% plus losses should be a cinch. How should bond vigilantes be positioned?
The right side of the trade in the bond market has been short or inverse ETFs that move in the opposite direction of prices for Treasuries. These types of bond ETFs - especially funds concentrated on the long-end of the yield curve - continue to rack up big gains.
The Direxion Daily 30-Yr Treasury Bear 3x Shares (NYSEARCA:TMV) is up 41.22% and the ProShares UltraShort 20+ Yr (NYSEARCA:TBT) is ahead 29.40% over the past year. TMV aims for 300% daily inverse performance to long-term Treasuries whereas TBT does that same thing but with 200% leverage.