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30-YEAR TREASURY BOND CYCLE, SEASONAL PATTERN, AND TRADING GUIDE
Even though the 10-year note has become the benchmark yield instrument, the long
end of the yield curve offers investors added volatility and much bigger price swings.
Price is the opposite of yield; when prices move up, interest rates go down, and when
prices decline, interest rates are rising. Moreover, Treasury issues, at times, have a
decoupling relationship with stock price action. When stocks go up, investors sell
bonds to raise cash to allocate back into equities and vice versa. In times of financial
and economic upheaval, as was the case in late 2008, bond prices soar. However, we
still see a seasonal cycle of supply and demand flows, as bond prices tend to
peak towards mid-December when investors reallocate funds for year-end book
adjustments. It is no coincidence that as stock prices are at their best, bond prices are
beginning to peak. If that theory holds, then the opposite should be true.
Bond prices typically tend to make their seasonal bottom in late June to mid-July,
as stocks tend to see summertime highs. Other factors that weigh on Treasury prices
are the perception of inflation, whether real or not. Inflation, as well as increases in
supply, reduce an investment instrument’s long-term value. When we are in periods of
rising inflation, we will see price declines (rising yields and interest rates). This
accounts for the loss in the value of a bond today vis-a-vis the face value of the bond
at maturity. A higher yield attracts an investor; in other words, higher interest rates
help boost demand. The government spends money, and to raise capital they issue
treasury bonds. This is done through quarterly refunding operations. Typically, the
Treasury Department's borrowing estimates are announced for the second quarter
around late January or early February, and this can add pressure to bond prices, where
we see a seasonal decline lasting to the seasonal lows in June.
30-YEAR TREASURY BOND ONE-YEAR SEASONAL PATTERN
6
4
2
0
2
4
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
25-Year Pattern
5-Year Pattern
Based on near-term futures contract daily data 1985–2009
30-YEAR TREASURY BOND NEAR-TERM CONTRACT ANNUAL HIGHS, LOWS, AND CLOSES SINCE 1978
HIGH LOW YEAR HIGH LOW YEAR
YEAR DATE CLOSE DATE CLOSE CLOSE YEAR DATE CLOSE DATE CLOSE CLOSE
1978 01/04 98'310 12/28 90'060 90'110 1995 12/29 121'150 01/03 98'230 121'150
1979 07/02 92'090 11/07 78'060 82'060 1996 01/03 121'180 06/12 105'280 112'200
1980 06/16 86'000 02/21 64'130 71'120 1997 12/22 120'290 04/11 106'200 120'150
1981 01/05 72'290 09/29 55'260 61'290 1998 10/05 134'210 03/05 118'210 127'250
1982 11/04 79'030 02/09 57'030 76'200 1999 01/29 128'000 12/23 90'300 90'300
1983 05/04 79'220 08/08 68'220 70'010 2000 12/22 105'190 01/18 89'070 104'200
1984 12/18 72'220 05/30 59'080 71'020 2001 11/07 111'160 05/29 98'180 101'170
1985 12/27 85'100 03/18 67'170 85'070 2002 10/09 114'200 03/14 97'260 112'220
1986 04/16 104'270 01/13 81'250 98'060 2003 06/13 122'210 09/03 104'070 109'100
1987 01/09 101'190 10/19 77'250 87'310 2004 03/17 115'310 06/14 103'000 112'160
1988 02/10 95'010 08/22 83'310 89'040 2005 06/27 119'080 03/22 109'240 114'060
1989 08/01 100'120 03/20 86'160 98'210 2006 01/17 114'280 06/28 105'150 111'140
1990 01/02 98'130 08/24 87'050 95'230 2007 11/26 118'280 06/12 105'110 116'120
1991 12/31 104'240 06/12 92'090 104'240 2008 12/30 141'135 06/13 111'270 138'015
1992 09/08 106'290 03/16 97'090 104'210 2009 01/15 137'045 06/10 112'220 115'120
1993 10/15 121'300 01/12 103'210 114'160 2010* 02/05 119'160 04/05 114'120
AT PRESS TIME
1994 01/28 117'140 11/11 96'020 99'050
*Through April 30, 2010
c02_CTA_2011_pgs_120-182_c02_CTA_2011_pgs_120-182 7/19/10 10:45 PM Page 142

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