Surprised in TLT Performance since FOMC Announcement

[buddtholomew]

I am surprised at the poor performance of Long-Term Treasuries since the latest Bernanke announcement to extend Operation Twist. Logically, I would have expected longer dated treasuries to outperform given the additional purchases the Fed intends to make. Does anyone have a theory as to why yields have been going up and bond prices falling since the announcement?

Best-
Budd

[buddtholomew]

I take it I am the only one who is surprised by the performance of TLT since the FOMC announcement 

[Storm]

I am not sure, but it seems like the market had already priced in QE3, and was somewhat disappointed with just more Operation twist.  Long term yields were also so low already that it's tough to move them further.

My prediction is that the news is going to get much, much worse over the summer and the Fed will be forced to do QE3 by fall sometime.  It seems like the entire world is falling off the edge of a recessionary cliff right now.

[AdamA]

I'm not sure how much these announcements really matter.  I think the major markets often respond to things we don't ever hear about in the news, especially the bond market.  Not necessarily dramatic events, just the so-called "smart money" responding to various economic and demographic trends that are not always exciting enough to make the financial news.

[jackely]

I've only been observing the PP in action for about two years and I was also a little surprised lately by the behavior of TLT. To me the red and green numbers are mostly magic and I don't understand what is really happening underneath except that it makes perfect sense that in general the overall trend would be towards the green, given the constant of human nature. The PP has convinced me (with the help of charts) as being the most reliable and safest way to tap into that momentum over the course of time.

But I did see an unusual pattern last week in that TLT didn't respond as it had before in similar situations. When I heard that the stock market was way down one day I clicked on the Morningstar portfolio link expecting to find the usual pattern of money moving in a predictable way only to see that gold was actually down more than stocks and TLT was only slightly higher. So where did the money go? If you have faith in the PP then the only thing you could conclude was that it went to cash where it wouldn't register at all - especially with today's zero interest rates. That strikes me as an unhealthy sign for the economy in the short run but maybe not in the long run.

But mostly I just don't look at it too much because when all is said and done the red and green are still magic - my gut observation of patterns notwithstanding.

[Ad Orientem]

I concur with Storm's assessment. I think the markets had QE3 priced in and when they got QE3 x (1/10) there was universal disappointment. Note that gold also fell on the announcement. But its coming. I see no way around it unless they are prepared to watch the depression deepen significantly.

[Tyler]

It reminds me of last year when S&P downgraded the US credit rating, and treasuries immediately shot up.

Markets are often irrational.  That's why I prefer to diversify rather than reason with them.