30-Year Bonds Hit Again

The 30-year Treasury bond, which bears the burden of Treasury market uncertainties regarding interest rate risks and does not have the benefit that shorter issues do of being anchored to the federal funds rate, was smacked again today, with its yield rising 22 basis points to 3.01%. The 30-year bond's yield has increased 45 basis points since it bottomed last Tuesday at 2.55%. Yields on shorter maturities have fared far better; for example, the yield on two-year notes has increased just 6 basis points since last Tuesday.

Fervor for shorting the long end of the Treasury market has obviously seen a marked increase over the past week and in particular today, following weekend articles discussing the apparent overvaluation of Treasuries. The increased fervor is very apparent in the volume of the UltraShort 20-Plus Year Treasury ProShares (TBT - commentary - Cramer's Take) ETF for long-dated Treasuries, symbol TBT. Trading volume was about 14 million shares today, about 80% more than the previous peak on Dec. 17. This is probably at least partly a case of "give me some exposure" to the short idea, and it therefore is probably moving toward becoming a crowded trade.

For the selloff in Treasuries to be sustained in the near term, investors need clarity on the depth and duration of the economic downturn and for more data to hit the "trough list," the list that would include data no longer getting worse. It is a short list, although car sales can probably be added to the list in light of today's sales figures, the Treasury's investment in General Motors' (GM - commentary - Cramer's Take) GMAC unit and the upcoming initiation of the Federal Reserve's $200 billion program to support the asset-backed securities market. If car sales have bottomed, other data will hit the trough list, including industrial production and regional manufacturing surveys, creating risk for shorts in the Treasury market.

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Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market, first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.

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