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Dick Clark and the long bond yield

December 28, 2009

A popular investment platitude is “The trend is your friend, until it ends.”

The above chart shows the yield of the US 30-yield treasury bond. For the past twenty years, buying the bond as its yield approached its 100 month moving average has been a winning strategy. Right now, that strategy demands a purchase of bonds — with a stop-loss a little bit above. (Remember that bond yields and bond prices move in opposite directions.)

However, if the bond yields more than 4.75% when Dick Clark rings in the New Year, this long-term “secular” trend will have ended. Historically, broken secular trends are dangerous beasts, and the first leg of the reversal can be violent.

[Disclosure: Rocky is agnostic about whether Dick Clark should have retired 20 years ago. He is also agnostic about the short-term direction of the bond market. Because he accepts that “the trend is his friend,” he may buy a few bonds — before he leaves his office to buy his New Year’s Eve party hat. When Rocky wakes up in 2010, he’ll find out whether the 20-year-long bond bull market remains alive — or has joined Guy Lombardo in heaven. See: http://www.last.fm/music/Guy+Lombardo/Christmas+Through+the+Years/Auld+Lang+Syne]

  1. allocator
    December 31, 2009 at 11:58 pm

    Happy New Year!


  2. January 1, 2010 at 7:26 am

    George: You were 2 minutes early. đŸ˜‰

    But, same to you!

  3. kim
    January 22, 2010 at 9:21 am

    Nice cooking, dude!

  4. January 22, 2010 at 7:45 pm

    Kim — Thank you, however, you never tasted Rocky’s Fagottini.

  5. kim
    January 23, 2010 at 10:57 am

    Well it looks good, and I hope to try it one day (though possibly the version sans Ron Popiel’s contraption).

    Your recipe for game change, “Mass Election Souffle”, was quite tasty though the subsequent effects on digestion were not on the menu. They say never get the cook mad.

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