Friday, December 6, 2013

SPY/TLT Ratio Nears its 2007 High; Look at the Huge Gap between $SPY and $TLT

Some economists and fund managers believe a deflationary scare will make Treasury bonds attractive again. Gary Shilling, President of A. Gary Shilling & Co, recently told Daily Ticker that he thinks the 30-year Treasury yield will soon be below 3% because of the deflationary forces still in the economy. The 30-year yield is currently at 3.91%.

Jeff Gundlach, CEO and CIO of DoubleLine Capital, recently told Barron's that "we might have a panic into Treasuries."

Gundlach: We might have a panic into Treasuries that might take out last year's low yield of 1.4%. I'm not saying it's the base case, but something shaky, maybe a recession or a problem internationally, could trigger that. Everyone always says, "What's the catalyst?" Well, you never know until after the fact; otherwise, it would be priced in the market. But there is no inflation. Just look at commodity prices. And [Federal Reserve Chair nominee] Janet Yellen's recent testimony was really interesting when she said—and here is the big word—that it was "imperative" that we not withdraw stimulus too soon. That's a pretty strong word. I think they are worried about deflation.

Either way, I don't see how this gap between SPY and TLT doesn't close a bit.

Source: TradingView.com (SPY is in blue, TLT is in red)

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