Bonds gain as investors flee stocks
So far in 2010, stocks have struggled. Major indices began sliding in April and most have significant losses since that time. As a result, traders and investors looking for protection from risk and for gains have been looking to long-term government bonds.
It’s no secret that U.S. Treasury Bonds have long been viewed as a secure investment. And during periods of weakness in the stock market, investors and trader move money from stocks and into bonds. This pattern is often referred to as a “flight to quality.”
With the exception of funds that short stock indices, long-term bond funds are among the only positions returning positive gains so far in 2010.
The black line on the chart below shows iShares Barclays 20+ Year Treasury Bond Fund (TLT). The gold line is the S&P 500, included for comparison.
As the chart clearly shows, so far in 2010 long-term bonds have shown a high inverse correlation to the stock market.
The bottom portion of the chart is a relative strength indicator (RSI). When this indicator trends above 50, the underlying investment has the strength and momentum to sustain an upward trend. In the case of TLT, it has held above that mark since mid-April.
Strategis Financial Group is currently holding bond positions in several of its investment strategies.
As long as stocks continue to struggle it is likely that the value of long-term bonds will keep rising.
F.S.