U.S. Treasury Bonds: Talk About Drama

Includes: IEF, IEI, SHV, SHY, TIP, TLT
by: Gary Tanashian

In honor of our friends at Treasury selling their bonds (more of our unpayable debt) yesterday and today, and in light of the fact that it took higher rates (bonds across the board tanked yesterday), I thought I would take a look at some iShares T-bond charts.

Up today, the government peddles 32b worth of 7 year notes, so the iShares 7-10 year Treasury fund IEF gets the main chart. In the lower panels are the IEI 3-7 year and TLT long bond funds.

Before we look at the chart, a question; what exactly does it tell us when the inflators attempt to find buyers for their bonds (def- 1: a binding security; firm assurance: My word is my bond. 2: a sealed instrument under which a person, corporation or government guarantees to pay a stated sum on or before a specified day. 3: any written obligation under seal) and with long term interest rates already approaching 'big picture' tolerance levels (that would be the err, barn door) rates rise strongly on auction day?

It tells me there is a problem with a lack of confidence in the US Treasury (no bleep?), but that the policy of low short rates (despite market pressures on the freer long end and despite economic/asset recovery) and a firm 'inflate or die' attitude to continue funding this macro experiment continues unabated. They are pushing the tachometer into the red in a tacit statement of "We are America, and what the bleep are you going to do about it anyway?"

Is it possible that the world - given the unraveling of the euro amid the failed experiments popping up over there with greater frequency - is submitting to the US and the too big to fail owner of the reserve currency simply knows it can take and take and take? And the US' subjects just line up for more, albeit at higher rates of interest?

Hey look, I am just a blogger trying to figure out the meaning of some very confusing questions and conflicts, just like you. So on to the chart. What I find here is surprisingly bullish - for Treasuries (and for the still open deflation impulse scenario).

7-10 year Treasuries are in a nice symmetrical triangle, which is a continuation pattern. No breakout yet, but if the break is to the upside, expect a strong move with upside follow-through.

The next panel is the home of the 5 year Treasury bond and its pals on the short to medium end. Ascending triangle - bullish continuation as long as lower line holds. A break of the top line brings on a strong move higher. It's just about done coiling and will break one way or the other shortly.

Finally, in the lower panel is our long bond proxy, the iShares TLT 20+ year fund. Below the lower trend line we go into Wonderland, uncharted inflationary territory. But what's this? TLT has creeped out of the weekly downtrend while holding the 'barn door' line. There is little downside tolerance left. We are there folks; on the cusp of having some big ongoing questions answered. Recall that if you flip TLT over, it looks like a bullish inverted head & shoulders. Talk about drama?

Don't you just love the markets?

Disclosure: Author hold long positions in SHV and SHY