Some market participants continue to observe that the “volatility of the VIX” itself still remains near unprecedented levels. Finally, a familiar trade that has surfaced from time to time over the past several years is the “Bearish Long Term Treasury Bond” trade, and typically we will see a trend of call buying in ProShares UltraShort 20+ Year Treasury Bond (NYSEArca: TBT) and put buying in iShares Barclays 20+ Year Treasury Bond (NYSEArca: TLT) as well as accelerated volume and activity in Direxion Daily 20 Plus Year Treasury Bear 3X (NYSEArca: TMV).
The “Bond Bears” are speculating on rising yields and thus lower prices in longer dates Treasuries and some would argue that if this trade turned out to be directionally correct over a longer period of time, this would be bullish for equities as well since many assets currently invested in longer dated treasuries may migrate over to other asset classes.
In the past week or so, this trade has gathered some momentum, and we note that TLT over the past three sessions has fallen once again below its 50 day moving average, but we will be watchful to see how long it stays there. Since October of last year, dips below the 50 day moving average in TLT have only been temporary “stalls”, and the Long Bond has simply continued its uptrend despite these brief hiccups and despite longer dated treasuries still delivering relatively low yields. Interestingly, despite the bearish price action last week in TLT, the fund itself was near the top of the list last week in terms of inflows via creations, as about $300 million entered the ETF.
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