Is the Treasury Bull Market Over?

Over the past five years, they have risen about 37%

The best days for long-term U.S. Treasuries (TLT) may be history. That’s what a growing consensus now believes.

The Federal Reserve’s announcement, made by Ben Bernanke (left). that it would initiate QE3 via $40 billion open-ended mortgage bond purchases sent long-term Treasury prices tumbling. Was the Treasury selloff a short-term hiccup or a major trend change?

Over the past five tumultuous years, U.S. Treasuries have been a good investment. Cumulatively, long-term Treasury ETFs have gained +36.89%, while over the same period, the S&P 500 (SPY) has declined by -3.52%. (See chart below)

Still, the souring mood towards Treasuries is being reflected in both today’s sentiment and news media. Here are a few recent headlines:

“Long-dated Treasury Face Tougher Days” – Wall Street Journal; “Treasury Cyclicality: The End is Nigh” – Seeking Alpha.com; “The 30-Year Bond Bull Market is Over” – Felix Zulauf via King World News.

Despite the gloom, we highlighted supportive and bullish keys to long-term Treasury prices in the October edition of the ETF Profit Strategy newsletter.

Among these, is the extension of “Operation Twist” which has the Fed buying $45 billion per month in long-dated Treasuries through the end of 2012. Also, there’s still a chance this particular plan could be extended beyond this year’s end. (In case you haven’t noticed, the Fed likes extensions.)

Another important factor is the deteriorating situation in Europe. In the short-run, the flight of capital out of European sovereign debt should boost U.S. Treasuries.  

Ultimately, the bull-run in Treasuries isn’t over until the market says it’s over. 

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