Last night on CNBC’s Fast Money my “Final Trade” was to sell the TBT ETF which is a play on the long end of the US Bond market. A long position in the TBT is a bet that rates will move higher. My call was that rates have come too far too fast. No way rates are spiking to 3% in one flew swoop. You have to trade levered ETFs hard and the TBT is to be sold on its first test of the 200mda. You have not seen a move on TBT ( or long end of the US bond curve) up through the 200mda since May 2013. Those were taper tantrum times. Rates went from 1.60% to 3.00% from spring to summer as markets digested the Fed that was making noise on removing their bond buying program and beginning to look at normalizing rates. There was a reason to be concerned with some of the growth numbers, some inflation, and clearly it was simply time for the Fed to back off artificial sweeteners in the long end of the curve.
This time is not that time. Take the money and run
Be a trader….trade this move. Sentiment again, too frothy and being somewhat contrarian and active in your rates view is how to trade this part of the market right now.
TBT long term chart
Sell the $TBT at these levels today ( or short it outright).
The TBT has rallied 16% in two weeks even after a small pullback yesterday as it rallied from $41.20 base ( or 1.90% on the 10yr) to $49.50 intraday yesterday. Yesterday we saw the first test of the 200mda in the $TBT and there was a failure. This is nothing that should be surprising or seen as not validating the move in rates. The breakdown at the 200mda was the first test of what will be multiple tests, but an eventual move higher in rates. As much as we want it to be gradual, it may not be this orderly ( in fact this first move was far from orderly and was arguably disorderly if you focus on the move in EU rates at the same time). Rates are going higher and the trigger may not be obvious when it happens but in the short term, there is no way that the adjustment taking place in rates happens this quickly. There is also no change in policy or data that has triggered such a move. The Dollar was overbot, carry trades were unwound, the Euro was oversold… And rates responded. Now play for a move back to $44.00 on the TBT before taking another bite of the cherry and trading it trading back higher. My time horizon for owning levered ETFs on rates and currencies is typically about 3 weeks tops.
Short term chart