Since QE3, Treasuries Outperformed Stocks and Commodities

NEW YORK ( TheStreet) -- My career on Wall Street began as a U.S. Government Bond trader in 1972 when my father passed the baton to me after he traded Treasury bonds since 1938. He experienced a low interest rate environment for most of his career, but not the sustained trend to the record low yields we have seen so far this century.

On May 15, I wrote Make Money Trading U.S. Treasuries and explained my belief that the U.S. Treasury market was not in a bond bubble. I explained how to buy and trade the US Treasury market like a stock using IShares Barclay's 20+Year Treasury Bond Fund ( TLT).

On July 18, I wrote Low Yields Don't Make a Bond Bubble and in this story explained that the only bond bubble came at the record high yields of 1981 through 1986. I illustrated how a buy of TLT on June 17, 2005, with a sell on July 16, 2012, outperformed a similar trade in SPDR S&P 500 ETF Trust ( SPY). TLT gained 39.6% versus 12.5% for SPY.

When the Federal Reserve announced QE3 on Sept. 13, it said that the purpose of this monetary stimulus program was to bring down long term U.S. Treasury yields and the rate on the 30-year fixed rate mortgage.

Even so there was a parade of Wall Street strategists and money managers continuing the mantra to avoid U.S .Treasuries. They continue to be wrong.

The problem with the notion to avoid U.S. Treasuries is the thought that investors must hold bonds to maturity, which is far from the truth. You could have bought the U.S. Treasury 10-year note on a buy-and-hold strategy as cheap as 6.68% in January 2000, obviously a successful investment with the S&P 500 at 1465 at that time.

A buy-and-hold in the 10-year note has been clearly successful right into November 2007 when this yield plunged below its 200-week simple moving average then at 4.5%. Even a buy at 4.5% in November 2007 outperformed the S&P 500 then above 1500.

Over the past five years both the 10-year note and S&P 500 have been buy-and-trade opportunities where "risk off" versus "risk on" has been the strategy between the two.

Fast forward to Sept. 13, and we find that since then the "risk off" trades have outperformed "risk on" trades as a buy-and-trade" strategy going long in TLT has outperformed SPY, the SPDR Gold Trust ( GLD), and the Energy Select Sector SPDR Fund ( XLE).

It seems that the Congressional agreement to compromise on the fiscal cliff shifted the sentiment to "risk on" from "risk off" during last Friday's trading.

TLT (125.66): At Friday's close TLT was up 6.6% since Sept. 14, and was still up 6.1% after Monday's weakness in TLT. As the table above shows TLT outperformed SPY, GLD and XLE since QE3 was announced. My semiannual value level for TLT is 122.20 with a weekly pivot at 126.16 and monthly risky level at 129.39.

SPY (139.13): At Friday's close SPY was down 8.6% since Sept. 14, and after Monday's strong rally is still down 6.5% since Sept. 14. Booking profits in TLT and buying SPY could have been a buy-and-trade strategy versus my annual pivot at 135.74 on SPY. My weekly and annual pivots are 136.40 and 135.75 with my monthly risky level at 141.59. Monday's close was above the 200-day simple moving average at 138.45.

GLD (167.87): At Friday's close GLD was down 3.8% since Sept. 14, and after Monday's rebound was still down 2.6% since Sept. 14, and below its 50-day simple moving average at 168.96. Bonds thus outperformed gold. Weekly and monthly value levels are 163.52 and 159.51 with my semiannual pivot at 165.00 and my quarterly risky levels at 178.71 and 182.25.

XLE (70.51): At Friday's close XLE was down 12.2% since Sept. 14, and after Monday's strong rally for crude oil was still down 9.7%. Monday's close for XLE was just above the 200-day SMA at 70.42. Bonds also outperformed oil since QE3 was announced. My weekly and monthly value levels are 68.40 and 65.45 with the 50-day simple moving average at 72.81.

My conclusion is that as long as the Federal Reserve continues its quantitative easing programs U.S. Treasury yields should remain near record lows set in 2012. While a buy-and-hold strategy may not be prudent now, you can still have buy-and-trade strategies timing the volatility in "risk off" versus "risk on" trading opportunities.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.