by Kevin Klombies, Senior Analyst,

Thursday, September 11, 2008

Chart Presentation: 30-year T-Bonds

It is hard to believe that seven years have passed since the 9/11 terrorist attacks. Pamela’s brother returns in a week or so after a tour of duty with the Canadian army in Afghanistan. Her brother is a battle group chaplain and he has had to perform far too many ramp ceremonies as the bodies of fallen Canadian soldiers are loaded onto transport planes to be shipped back to their loved ones. Seven years later the events of 9/11 continue to haunt.

Below we show the S&P 500 Index (SPX) and the U.S. 30-year T-Bond futures from the end of 1980 through into the spring of 1983.

We have done this comparison on a few occasions in the recent past. The argument is that the equitybull market began when bond pricesbottomed in late 1981 even though the SPX continued to decline into August of 1982. When bond prices finally broke out of the tradingrange in August the SPX pivoted higher.

We mention this because the 30-year T-Bond futures are currently flirting with new highs just under 122. In terms of ‘yield’ a break below 4.16% would take 30-year interest ratesbelow the levels set this past March.

We note on the chart below that each of the recent rallies in the SPX has gone with falling bond prices. The point is that we can argue that if the TBonds decline from current levels the SPX can rally and if they push on to new highs then the comparison to 1982 suggests at least the potential for a bullish outcome as well. With the markets facing such a major decision point no wonder prices have been so volatile this week.