Guest Post: A Technical Look At Treasuries - Room For Optimism

Tyler Durden's picture

Submitted by Yves Lamoureux, from Macquarie Private Wealth

A unique look at bond behavior will serve to illustrate how risk is lowered in holding long Treasuries for the coming year.

The graph that we produce today is based on data from the St.Louis Fed.

The Treasury bond data reflects the constant maturity 10 year bond and includes the coupon plus price appreciation.
You are looking  at the annual return of the 10 year bonds since 1928.

A startling observation  is the large upswing  following a negative year.The year  2009 closed with a negative return of -11%.

The readers will notice that over the last 80 years plus rarely has this phenomenon been proven incorrect.The only exception is the period at the chart point 28 and 31 which  represents  the time frame of  1955 to 1956  and  1958 to 1959 where  one negative year was followed by a second negative year.

In both instances the following negative year amounts to either -2.26% or -2.65%. These two events are the exception to an 80 year period. This simple correlation for bonds to turn positive following a negative year is compelling

On a positive note, negative years are often followed by a string of positive years.

To be clear, the consensus is for bonds to drop “again” this year. This market observer will hedge his bets on the simple fact that 80 years of history has demonstrated.

The opinions contained in this report are those of the author and are not necessarily those of Macquarie Private Wealth Inc (MPW). Every effort has been made to ensure that the contents of this document have been compiled or derived from sources believed to be reliable and contains information and opinions which are accurate and complete. However, neither the author nor MPW makes any representation or warranty, expressed or implied, in respect thereof, or takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. No entity within the Macquarie Group of companies is registered as a bank or an authorized foreign bank in Canada under the Bank Act, S.C. 1991, c. 46 and no entity within the Macquarie Group of companies is regulated in Canada as a financial institution, bank holding company or an insurance holding company. Macquarie Bank Limited ABN 46 008 583 542 (MBL) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. MBL is not authorised to conduct business in Canada. No entity within the Macquarie Group of companies other than MBL is an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia), and their obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of any other Macquarie Group company.
Macquarie Private Wealth Inc is a member of CIPF and IIROC.

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Anonymous's picture

true dat but look at those fat tails (pun intended) during the great depression years.

perchprism's picture


The readers will notice that over the last 80 years plus rarely has this phenomenon been proven incorrect.

"Incorrect" is not correct;  "untrue" is the proper word to use.

Still, it is an interesting observation.  90% of my 401-K is in Treasuries, since January '08.  I missed the crash, but also the 60% recovery since March. I can't participate in the stock market because it's now starkly manipulated, and hence can't be predicted with standard due diligence.

But my expectation is that this year will prove to be a disaster for Treasuries, because of fundamentals, and yet here's this data set that says it'll be the first time it's happened (in a year following a preceeding > 5% drop) in 80 years.  I think we're totally breaking new ground here.  I think Mr. Lamoureux is in for a rude awakening.    

Anonymous's picture

and that's why you are in 90% treasuries with your own money...good call, pal

IBelieveInMagic's picture

Didn't the 10 year Treasuries return a positive return for 2009 (around 5 -7%)? At least that is what IEF ETF is showing me...

phaesed's picture

hmmmm, perhaps if you include dividends.... but I don't believe that that's the case, the 08 return was insane.


Anonymous's picture

If you believe the deflation theme then rates have to go lower regardless of our incompetent governement and federal reserve bank. Japan makes that point.

Anonymous's picture

And what, may I ask is 'magic' about a calendar year? Absent an explanation, this is just a historical oddity.

Yves Lamoureux's picture

from the Author

ending rates   for   2006  +1.96%

                           2007  +10.21%

                           2008  +20.10%

                           2009  -11.20 %

I tried to remove the emotion aspect of this trade by showing this first study.My favorite tool will be shown in a future coming piece.