I posted once before about TBT and now again, TBT seems to be presenting an opportunity. The TBT is an exchange-traded fund (ETF) that creates a short position in the long-term US Treasury bond. Today TBT appears to have broken out above a long-term down trend-line and triangle pattern. From a technical standpoint this is bullish. From a fundamental view, interest rates are at historically low levels. A simple mean-reversion would suggest that rates will go up and bond prices will go down and the TBT will go up. Beyond mean-reversion, there are strong reasons to suspect that Treasuries will drop. First, the US government has been buying Treasuries to keep rates low to help the housing market and the economy. Once the government stops supporting the bond market, rates will rise. Second, so many investors are still scared of another collapse like the one we saw in the fall of 2008. These investors have kept their money in US government bonds. If the fears subside, these investors will sell the government bonds and buy other riskier assets. Lastly, the high US trade and budget deficits should, over the long-run, cause rates to rise. Today, the 10-year treasury auction did no t go all that smoothly. Perhaps we are beginning to see a change in the interest rate environment. It may be early but the technicals seem to be aligning with the fundamentals in TBT.
