Two months ago we wrote about the opportunity to lock in higher yields while you still can. Since then, our favorite yield generating investment is up a solid 4%. The window of opportunity to lock in higher treasury yields is still open … but this may be your last chance.
In the past eight months, yields on U.S. Treasuries have risen over 60% from a low of about 1.5% to over 2.4%. Current yields are hovering above the 30-year trend line, which has led to a lot of speculation about the end-of-the-bond bull market.
The 30-year decline in interest rates on T-Notes may indeed be finally coming to an end … but we’re not so sure.
Prices for interest-rate sensitive investments have definitely been hit hard by the recent rise in yields. A great example of that is the price of T-Notes in the futures markets which have dropped from a high of $132 in July 2016 to as low as $123 in December, 2016. (Prices move inversely to yields.)
The SSI chart on T-Note futures above shows that T-Notes corrected by more than their normal expected volatility range … and were stopped out just below $126 back in November.
While prices for most interest-rate sensitive instruments have taken big hits in the past six months, there is one type of yield-generating investment that has held up better than most. It’s the one we told you about a couple of months ago – TIPs.
TIPs are “inflation-protected” treasuries. They have a built-in mechanism to offset the ravaging effect of inflation on bond prices. If the CPI (consumer price index) is rising, then that rise will be a support to prices of TIPs. TIPs basically factor-out inflation from bond prices.
Since triggering an SSI Entry signal in April, 2016, the TIPs came close to hitting the SSI Stop signal in the middle of December, but then bounced back higher and are now back in the SSI Green zone.
Supporting this bullish position, the dominant one-year time-cycle for TIP shows a likely move higher that should continue into September, 2017.
I’m bullish on T-Notes in general because I like to bet with the smart-money … and the smart-money is literally as bullish as it has ever been when it comes to T-Notes. Not only are the commercial hedgers super-bullish on T-Note futures, the open interest on T-Note futures is also at all-time highs.
You just don’t see this levels of bullishness and interest very often.
Don’t count out the 30-year rally in bond prices (and decline in bond yields) just yet … and if you do decide to try to lock in some of today’s higher yields, TIPs have held up much better than other yield-generating investments.
Have a great weekend,