The Bond Market  has now been officially dumbed down into a $7.5B ETF affectionately tagged the TLT. It holds 96.5% of it money in 33 US Government obligations with a duration of 18 years and an average yield of 2.37%. Peeps love it ! Its done exceptionally well since its inception in 2002.

As of late, as in this month, the TLT has begun to wobble. Interestingly, the damage has been in a "follower" mode. The JGB and the Bund lost their luster before the TLT fan base even considered a sell order. Money Funds, on the other hand, have been repulsed. As we have been tracking here, Prime Funds have seen roughly $700B head for the exit over the last year. According to Bloomberg's reporting : Northern Trust is prepping for another $200B out and TD estimates as high as $300B. All of this over the next 30 days as the well documented Oct 14 deadline hits.

In a world of government mandated low volatility, negative yields outside the US, and long duration  US funds delivering money market like returns; How much of Ma and Pa's "cash" has been transformed into wonderful financial innovations like TLT ? The fear of "breaking the buck" is promulgated yet, a break now is any price lower than purchased. We believe many Bond Market holders (renters) actually do not know or understand what they've been pushed into. Often, the credit worthiness is called into question for these IOUs. We have scoffed at the critique. We do think a more basic problem could develop. The price of the TLT could fall.

One thought on “TLT

  1. Lawrence Martin

    The TLT and the UltraBond futures track remarkably closely. I wouldn’t trade naked UB with opm let alone my own. How many peeps have themselves and their friends (grandmothers) in long only TLT positions ?

    BTW the UB dropped about 2.5 big ones on Friday before midday trading moderated the slide. Whats a few 1000’s between friends, eh .. ? Wobbly, yes; me terrified to anticipate the carnage ? u betcha ..

    Thanks for ur insight once more … lwm


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