We claimed appropriately bearish on bonds on December 4th, so you know this is not perma-book talking when we go the other way as yields hit our targets.

Bonds and Related Market Indicators

A subscriber asks for comment on sentiment in 1-3 year bonds and what it would take for me to “issue an all-out buy signal” on them. He is a new subscriber and has not been through the agony and torment of my frequent disclaimers on the subject of how I am just a lowly participant who would not issue all out buys, sells or anything else for others. 🙁

What I would do, however, is tell you what I am doing and last week to my recent buys in IEF (7-10yr) and IEI (3-7yr) I added SHY (1-3yr). The old saying goes “real men trade the long bond” and I guess I am not a real man because I don’t want to touch that far end (20+ years) of the curve at this time.

The reason I bought SHY is as it has been in the past, not to gain in its price but to use it as a dividend paying cash equivalent now spitting out significantly higher interest than it was just 6 months ago. Today, amid rising inflation concerns and everyone’s certain knowledge of a new bond bear market, it felt like the right time to increase bond exposure. The 2yr is paying higher income and it turns over much more quickly than the 20+ year (TLT).

Here is the 2yr note and its fairly favorable Commercial Hedgers position (public opinion is similarly constructive). This and similar graphics courtesy of Sentimentrader.

So if you buy 1-3yr Treasury bonds you are buying something at a much cheaper price than a year or two ago and being rewarded with greater income each month. That’s all I can tell you other than for me, it was time to add this portfolio balancer against the mass perception out there that bonds are done for.

Again, they may well enter a bear market. There is certainly reason to believe that global debt is out of control, never to be reeled back in but rather, inflated away. But the 2yr is a borderline cash alternative and even on the longer-dated Treasury bonds, a contrary setup is taking shape as we have been noting with Amigo #2 and his targets at the limiters.