Old Habits Die Hard: US Treasury Yields Can Go Lower

Standard and Poor's downgrades the federal government's AAA credit status to AA+ and what happens? Money stampedes into Treasuries. This must make some investors scratch their heads and wonder how on earth 30-year yields could sink even after a downgrade of US debt. Investors only need to look back to 2008 for the answer. Treasuries soared during the financial meltdown in late 2008, and with the S&P 500 Index having its worst downturn since then, it should come as no surprise that Treasuries are spiking once again. The global equity markets have lost almost $8 trillion in value since near the end of July. US stocks are the cheapest they have been in nearly 2 and a half years and still investors are clamoring for Treasuries and shunning shares of companies. In times of trouble, investors still run to Treasuries for protection. Old habits die hard. Some market commentators are saying that now is the time to short Treasuries. Yields cannot go any lower and are sure to rise, they say. Many of these commentators have been repeating themselves for years now. They have only been successful in losing money for anyone who has been foolish enough to listen. The iShares Barclays 20+ Year Treasury Bond TLT, an ETF that seeks results corresponding to the price and yield performance of the US Treasury market as defined by the Barclays Capital 20+ Year Treasury Index, is up over 7% in the last five trading sessions and over 14% in the past month. This is in stark contrast to the S&P 500 Index, which is down over 13% in the last five session and over 16% in the past month. Treasuries are down for the first time in four days ahead of a $16 billion sale today. This could be the perfect time to buy Treasuries if you see more pain ahead. ACTION ITEMS:

Bullish:
Traders who believe Treasury yields will continue to fall might want to consider the following trades:

• iShares Barclays 20+ Year Treasury Bond TLT

• ProShares Ultra 20+ Year Treasury UBT

Bearish:
Traders who believe that Treasury yields have hit bottom and are going to rise, may consider these alternate positions:

• ProShares Short 20+ Year Treasury TBF

• ProShares UltraShort 20+ Year Treasury TBT

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