Here are a couple studies on TLT, or rather its ultra inverse TBT. Both issues trade about 5 M shares per day and, for option traders, TBT has almost as much open interest as TLT. Now You might suppose that TLT and its inverse would trade at parity pretty much all the time. That is Up 1% in TLT, Down 1% in TBT. Turns out that's not a valid conclusion as can be seen by looking at a simple pair study of the two:
While the correlation is high....85%... there are clearly periods of imbalance between the 2 issues and these can be detected and quantified using our Z-score algorithm to produce a reliable 9 day signal over the past 6 months. The equity curve measured against RSQ is a bit jumpy but the detailed trade report shows how the 15 trades over 6 months made a nice return with only 3 losers.
Those of you who have been following me for the past few years know about the PDQ Dashboard and here's a version focused on TBT versus most of the bond ETFs as well as XLF and SPY.
Both of these scans are based on Friday's close so today's early action (TBT at -2%) has made the point.
The PDQ uses a slightly different algorithm than the MO2 pair study but the results are consistent and the PQD gives more of a consensus view than the simple TBT/TLT study.
The future of bonds is a subject prominent in the news recently as the majority of market gurus are predicting a bond collapse coming. Here's the
view from Pimco' Bill Gross...the world's biggest bond investor.
