Since QE3, Treasuries Outperformed Stocks and Commodities
On May 15, I wrote Make Money Trading U.S. Treasuries and explained my belief that the U.S. Treasury market was not in a bond bubble. I explained how to buy and trade the US Treasury market like a stock using IShares Barclay's 20+Year Treasury Bond Fund (TLT) .
On July 18, I wrote Low Yields Don't Make a Bond Bubble and in this story explained that the only bond bubble came at the record high yields of 1981 through 1986. I illustrated how a buy of TLT on June 17, 2005, with a sell on July 16, 2012, outperformed a similar trade in SPDR S&P 500 ETF Trust (SPY) . TLT gained 39.6% versus 12.5% for SPY.
When the Federal Reserve announced QE3 on Sept. 13, it said that the purpose of this monetary stimulus program was to bring down long term U.S. Treasury yields and the rate on the 30-year fixed rate mortgage.
Even so there was a parade of Wall Street strategists and money managers continuing the mantra to avoid U.S .Treasuries. They continue to be wrong.
The problem with the notion to avoid U.S. Treasuries is the thought that investors must hold bonds to maturity, which is far from the truth. You could have bought the U.S. Treasury 10-year note on a buy-and-hold strategy as cheap as 6.68% in January 2000, obviously a successful investment with the S&P 500 at 1465 at that time.
A buy-and-hold in the 10-year note has been clearly successful right into November 2007 when this yield plunged below its 200-week simple moving average then at 4.5%. Even a buy at 4.5% in November 2007 outperformed the S&P 500 then above 1500.
Over the past five years both the 10-year note and S&P 500 have been buy-and-trade opportunities where "risk off" versus "risk on" has been the strategy between the two.
Fast forward to Sept. 13, and we find that since then the "risk off" trades have outperformed "risk on" trades as a buy-and-trade" strategy going long in TLT has outperformed SPY, the SPDR Gold Trust (GLD) , and the Energy Select Sector SPDR Fund (XLE) .
It seems that the Congressional agreement to compromise on the fiscal cliff shifted the sentiment to "risk on" from "risk off" during last Friday's trading.
TLT (125.66): At Friday's close TLT was up 6.6% since Sept. 14, and was still up 6.1% after Monday's weakness in TLT. As the table above shows TLT outperformed SPY, GLD and XLE since QE3 was announced. My semiannual value level for TLT is 122.20 with a weekly pivot at 126.16 and monthly risky level at 129.39.