With TBT breaking below 15 we may be looking at a new bond paradigm and the next few days require close attention for risk savvy traders (and investors). The simple chart above shows yearly data for TLT (shaded area) versus the big 4 equities. Notice anything different from 03-06 versus 08-11? Bonds have reacted significantly different those those 2 periods of equity bullishness. Other than the Qs obvious attractiveness versus SPY (let’s not even mention XLF) bonds have been on a tear since Jan 10 driven by the housing meltdown, QE1&2 and general nervousness of the smart money crowd that storm clouds were brewing both nationally and internationally. Turns out they were right. So where do we go now? The current status of the VIX offers a tantalizing, if frightening, prospect of what could happen to bonds (and equities) and we’ll look at that scenario tomorrow.
