The bond market establishes interest rate trends, ultimately influencing returns on investment portfolios. Investors who rely on income from their investment portfolios tend to buy and hold, using time to collect cash flow. But there are certain times in the market's trend when action is required to manage risk. This appears to be one of those times.
The U.S. interest market benchmark is the 10 year Treasury Bond. The chart below is an E.T.F. (TLT) representing this particular bond term. You can see the market peaked (i.e. the price) in July 2012. Since then it has been range bound, currently in a recovery attempt from the September 2013 low. But here's where a pivotal decision making time comes into play.
The 5.5 month rally has bumped up against resistance defined by the red line connecting peaks in the nearly two year basing period. A sell signal was indicated, and presented in the full service research, in August 2012. But investors who still hold mid and/0r longer term maturities in the bond market, have reached another pivotal price point.
Selling when a systematic signal is presented, enables investors to improve a portfolio's ability to generate income. Here's how it works: using TLT as an example, investors could sell near the current price ($112/share). In the event, the market pulls back, re-entry in the market can, for now, be targeted near the low which is $100/share. That's approx. 10% lower than the current sell price.
By reinvesting the proceeds at a 10% lower price, investors have more capital to invest at a higher yield. In the bond market, price and yield are inversely related implying falling prices correspond with rising rates.
The second chart below is also TLT but it is a six month period with the 50 day moving average (blue line) imposed on the price trend. This shows the market is still technically holding its uptrend even though it is clearly into the fourth week of a shallow pull back. This may be the ideal scenario for investors to reposition their capital. Strategically, it is designed to manage risk using objective systematic criterion. Why not build the portfolio and improve returns? To find out more, use the fixed income research or get one-on-one guidance.
Canadian Bond Market; Long Term Bond E.T.F.
The Canadian and U.S. interest rate (bond) markets are linked. The Canadian market is closer to its high, but volatility has been lower than the U.S. counterpart and, like the U.S. market, Canadian bond prices are at resistance with the implication prices may fall and rates will rise.