iShares Barclays 20+ Yr Treas.Bond (ETF) (NASDAQ:TLT) is a “screaming buy” ahead of this week’s U.S. Federal Reserve meet, says one noted market voice.
The iShares Barclays 20+ Yr Treas.Bond (ETF) has dropped roughly 6 percent from the highs of February 11. As uncertainty surrounding the state of global economy rose, the likelihood of a Fed rate hike waned. However, since then, investors are increasingly reconciled to one or more hikes happening in 2016, which has sent bond yields higher and prices lower.
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iShares Barclays 20+ Yr Treas.Bond is a “Buy” at Current Levels
But traders betting on rate hikes could “end up off sides,” Larry McDonald, head of global macro at ACG Analytics, told CNBC.
“The Fed is dying to hike… (if that happens) the dollar gets stronger… (which) weakens the global economy…weakens commodities…weakens oil,” McDonald explained. “You have an economic backlash which provides an amazing screaming ‘buy’ for bonds,” he added.
McDonald expects bonds to be particularly appealing if they decline further in the event of a hawkish sounding Fed press conference tomorrow.
“Every time bonds have sold off since September, the cycle’s repeated…it’s going to repeat again.” And to profit from such a bounce, McDonald suggests traders should initiate long positions in the iShares Barclays 20+ Yr Treas.Bond (ETF) (NASDAQ:TLT).
Bond Yields Poised Lower?
In a report released on Sunday, Morgan Stanley slashed its 2016 Treasury yield forecast, and said the Fed will wait until December before raising rates.
“The global backdrop for rates markets looks so supportive that 2016 may become known as the ‘Year of the Bull,’” analysts there wrote to clients.
Max Wolff, chief economist at Manhattan Venture Partners, agrees that the rise in yields is more a result of asset rotation than a full-blown rally.
“Nothing fundamental or macroeconomic has changed,” Wolff said. “Emotion has changed… but the underlying condition – status quo.”
Charts Point to Further Downside for iShares Barclays 20+ Yr Treas.Bond
But not everyone is convinced that bonds are the best instrument to take advantage of this Fed uncertainty.
Craig Johnson of Piper Jaffray thinks yields look set to move higher. “From our perspective, I don’t want to own bonds at this point in time. (The) bull market in bonds is over…equities are where you want to be.”
Johnson, who heads the technical analysis team at Piper Jaffray, says charts paint a bearish picture for the iShares Barclays 20+ Yr Treas.Bond (ETF) (NASDAQ:TLT). TLT, which recently broke below the lower end of a price channel, could be headed for as low as $115. That represents an almost 10 percent drop from its Monday closing price of $127.76.