Time To Short Treasuries? Maybe Not

The Fat Pitch, March 25, 2013

There are three data points you might want to consider before deciding to swing at that pitch.

Short Side of Long (with a new publication I recommend reading, here) uses COT data for small speculators to show that they are already way ahead of you. As a group, they are mega short, which has previously been the signal to look long instead.

The March BAML survey (read here) found that a net 53% of fund managers are now underweight bonds, an increase from 47% in February. This is the lowest weighting in treasuries since May 2011, which, as it turns out, also happened to be a good time to get long the bond.

Finally, there is a pronounced seasonal pattern in 10 year yields. In most years, yields start to decline in the second quarter (red arrows). Two of the exceptions came when the SPX formed a major bottom in 2003 and 2009 (blue arrows). The other two exceptions: the tech bubble in 1999, and 2005, a year in which SPX and TLT did absolutely nothing.