Rarely do they ring a 'bell' at the bottom, but Friday's reversal higher in bond yields argues strongly for a sustained move higher in interest rates. Quite simply, Friday's employment report was clearly on the 'weak side'; with the 10-year note yield trading lower and then reversing and trading sharply higher. This 'key reversal' to the upside is likely a 'watershed event' in which bond yields will march higher over the short and intermediate-term time horizons. This pattern is one that we nearly trade with 'blind faith upon', and we did so on Friday by becoming short.
If one chooses to trade this pattern; one can short the 10-yr. or 30-yr. futures contract – or – short the Lehman 20-yr+ bond fund (TLT), but shares appear difficult to borrow at some brokerages – or – buy TLT put options. We don't recommend options for those who haven't had experience with them; and those that do must understand the risks.
