By: Elliot Turner
As I write this, the 20 year treasury note as measured by the TLT just moved into positive territory. Overnight, when talking about a potential U.S. government default on debt, Joseph Stiglitz declared that “The notion of a default is so absurd, it’s another reflection of the absurdities in the financial markets.” Any country who takes on debt in their own currency can simply print their way out of deficit troubles. That being said, the troubles in the Euro Zone seem to be triggering an increase of interest in U.S. government debt, despite the concern over growing deficits. Financial markets do not seem to be pricing in much risk on U.S. debt, a sharp divergence from the rhetoric in both U.S. policy debates and of prominent investors (like Nassim Nicholas Taleb, who recently said everyone should be short U.S. Treasuries).
Should the TLT take out recent highs in the $92.40 range, then that would signal a breakout of a significant triangle formation on the daily chart. Would a breakout lead to a huge short-squeeze? or would it simply concern a flight to safety? Regardless of the underlying cause, we need to listen to the charts and watch actual price action. Forget about the rhetoric for a moment, because the rhetoric and reality are not in line, and if the long bond breaks out, buckle up for the ride.
