Commodity Trader's Almanac 2O11

106

BONDS FREEZE UP IN WINTER

Typically, we see a seasonal tendency for bond prices to peak in November and then start a de cline

lasting into April, where we would be taking a seasonal long position, as covered on page 42.

Perhaps investors seeking a higher return feel more comfortable buying into the

year-end stock market rally, so they sell bonds and reallocate funds into equities. Or

perhaps end-of-year window dressing or savvy traders, wishing to take part in the

up-coming January effect, play a role in the

decline of bond prices.

In any event, this trade in the last 33 years

has a 54.5% success rate. In late 2008, 30-year

bonds made historic news with yields crashing

and prices making all-time new highs. The peak

came on December 18, 2008, giving consider -

able heat to this trade. However, as time passed,

this trade did unwind the massive equity loss,

registering a small $578 decline.

Consider the fact that in late 2008, we were

experiencing the worst financial debacle in his -

tory with the fall of Bear Stearns and Lehman

Brothers as well as the discovery of history’s most

incredible Ponzi scheme artist, Bernie Madoff,

who had scammed money from investors surpass-

ing tens of billion of dollars. It is no wonder that

this trade did not act perfectly, but over time and

with proper risk management, active traders

should be aware of the decoupling effect be tween

bonds and stocks. So if stocks ...