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A SEASONAL PEAK IN YIELDS?

Excellent data out of David Rosenberg which matches with my unwind of the “bond trade of the year”:

This may sound uncanny, but in four of the past five years, we saw the yield on the 10-year Treasury note hit the peak right in June, and while the experts each time were lamenting about inflation, fiscal policy, growth and beta-assets, not to mention the oft-called-for end of the secular bull market in bonds, the second quarter selloff that culminated in a classic blow off in June proved to be a great buying opportunity.

Consider:
• June 14th, 2004: 4.89%. The 10-year note closed the year at 4.24%.
• June 26th, 2006: 5.25%. The 10-year note closed the year at 4.71%.
• June 12th, 2007: 5.26%. The 10-year note closed the year at 4.04%.
• June 13th, 2008: 4.27%: The 10-year note closed the year at 2.25%.

But as the data above illustrate, after the June peak in yields, the 10-year note, on average, went on to rally 111 basis points (in 2005, it did look as though the bond market was looking to peak in terms of yield into June, but then we had the volatility amidst the Katrina hurricane, which begat a quick rally and then a huge selloff during the fall). So we should be seeing a nice little bond rally take hold in the second half of the year if this pattern reasserts itself.

Source: Gluskin Sheff

* Long U.S. Treasuries

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