(Bloomberg) -- A momentum-based technical strategy that has had a 100% winning record in trading long-term Treasuries this year flashed a sell signal Monday.
The sell call at Monday’s open comes after BlackRock Inc.’s $61 billion bond exchange-traded fund tracking Treasuries due in more than 20 years (TLT) surged Friday when a weak job report fueled speculation that the Federal Reserve will cut interest rates aggressively.
The move at the end of last week sent the ETF through what technical strategists call a “trading envelope,” a breakout that suggests the fund was overbought. It triggered a sell signal in a strategy based on the indicator, which calls for traders to unload a security when it reaches overbought conditions and to buy when it is deemed to be oversold.
The “moving-average envelopes” strategy has generated previous signals this year — in January, February, April, June and July — and all turned a profit. It has returned roughly 33% in 2024, the best among more than 20 strategies using technical indicators tracked by Bloomberg.
Of course, past performance doesn’t guarantee future returns. The strategy fared poorly last year, losing about 6.5% across five trades, modestly trailing the performance of a simple buy-and-hold strategy.
On Monday, Treasuries rallied across the curve, with 30-year yields dropping below 4% for the first time this year as waves of selling swept global stock markets. Bonds pared the gains after an indicator showed the US service sector rebounded in July. The TLT fund advanced about 0.4% Monday, extend its total return this year to 1.7%. The broader US Treasury market was up 3% this year through Friday.
The TLT ETF attracted inflows over the past three months, including $4.8 billion in June as investors anticipated that the Fed would start lowering borrowing costs soon.
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