Has the Long-Term Bond Market Topped Out?

George Brooks  |

Investor’s first read      - Brooksie’s edge before the open

Wednesday, March 21, 2012        9:02 a.m. ET

DJIA: 13,170.19

S&P 500:  1405.52

From time to time I have warned that investing in the long-term bond market was risky, that at some point interest rates will  rebound from historic lows resulting it a  wrenching decline in bond prices.

No doubt, my timing on several occasions was premature as interest rates dropped further and bond prices rose, but it appears that we  have now seen the top in the long-term bond market.

In just 16 days, the iShares Lehman 20+yr  treasury ETF (FLT) is down 7.3% and  the Vanguard Long-term Bond ETF (BLV) down  4.8%, losses that  exceeded their yields prior to the tumble.

With the perception that the  worst of European crisis is behind us and the prospect of a U.S. economic recovery continuing, interest rates stand to increase.  That could be disastrous for bond investors.

I believe the big story in 2012 will be the flow out of “safe” investments (bond funds, treasuries, money markets, CDs, etc.,) into the stock market. That may have already started to happen. In time this flow stands to run the stock market much higher, though not in a straight line.

As I have noted on occasion, CASH IS an investment. It doesn’t always have to earn a decent return if it enhances timing  of an investment, in this case in the stock market.

TODAY: Yesterday’s market could have dropped more, but it didn’t.


Selling just isn’t intense enough and institutions are buyers on dips. We do have some overhead supply (sellers at higher prices) to work through. It starts at DJIA 13,240 (S&P 500: 1411.

This week stands to give the Street a read on just how much of a rebound we are beginning to see in the housing market (See reports scheduled for week below).

Existing Home Sales come at 10:00 a.m.

Obviously, a recovery in the housing market would reduce the drag from this industry on the economic recovery and ultimately give it a welcome shot in the arm.


MONDAY (10 a.m.):  Housing Market Index:  The National Association of Home Builders/Well Fargo Housing Market Index (HMI) held in March at its highest level in four years following five consecutive months of gains.

TUESDAY (8:30 a.m.) February  Housing Starts held to an annual rate of 698,000 a smidge below industry projections.  This compares with a rate of 609,000 a year ago. At its peak in 2005, the annual rate of starts was 2.07 million, leaving plenty of room for further increase.

WEDNESDAY  (10 a.m.) Existing Home Sales –Rose 4.3% in January to a 4.57 annual rate reaching a 20-month high.


( 8:30) Jobless Claims –Decline for the week ending March 10. The 4-week average remains at 355,750.

(10 a.m.) FHFA House Price Index – improved slightly in December with a 0.7 increase, the same as in November. Versus a year ago, the Index is down 2.5%

(10: a.m.) Leading Indicators –January’s index  was up a strong 0.4%

FRIDAY (10 .a.m.)   New Home Sales – declined 0.9% in January after a sharp increase in December. The median house price edged up to $217,100 in January.

George  Brooks

*Stock Trader’s Almanac


The writer of  Investor’s first read, George Brooks,  is not registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.

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