"Been a FM subscriber for a few years. Look forward to attending the Chart Seminar in SF. There is an excellent interview of Tad Rivelle, bond market veteran and chief investment officer, fixed income, at TCW, by Michael Aneiro in the latest issue of Barron's (subscription required). I copied this excerpt in particular, wondering if the coming bear move in UST when the Fed unwinds will at all be an analogue of the 1993-94 move Tad describes below. Interesting thought for an eventual TLT short?"

David Fuller's view I know Eoin looks forward to meeting you at TCS and many thanks for this interesting and informative excerpt which I have reproduced below:

BARRONS: A Bond Pro Takes Stock at a Turning Point By MICHAEL ANEIRO

Tad Rivelle, chief investment officer, fixed income, at TCW, surveys the changing bond-market landscape. Bearish on Treasuries, bullish on money-center banks and worried about the Fed.

Barrons: It seems like the Fed has boxed itself in on interest rates. How will it reverse-engineer its process of lowering rates to near-zero without a disastrous impact on the Treasury market?

TR: The Fed has zero experience, as do most central banks, with unwinding the amount of easing and stimulus that they have injected. To the extent that history is a guide, we would have to look at the early 1990s, when there was a similar belief that elements of a balance-sheet recession were left over from the 1980s. It was nothing as severe as what we have experienced most recently, and the Fed was on hold for a long time. They got down to 3% rates, and in May 1993, [former Federal Reserve Chairman Alan] Greenspan stood in front of Congress and said, "The secular head winds are dissipating." That was meant to alert audiences that the Fed was getting ready to unwind its stimulus. Nobody listened, as you might expect.

Six months later, Coca-Cola issued 100-year bonds, an almost unprecedented thing. And a few months after that, in February 1994, the Fed took a baby step, raising rates to 3.25%, from 3%. So from May '93 to February '94, a relatively compressed time frame, you got 25 basis points of tightening. That tiny step unleashed the most severe bear market in Treasuries in decades.

No one knows if that is going to unfold here, but it seems hard to understand how, when the Fed decides to exit its current policy, it won't be a messy process. I don't know how the Fed is possibly going to contain the market forces that it has suppressed all these years.

I agree with Tad Rivelle and your conclusion. However, the timing is very tricky, as I know having lost money last year in shorting US 30-year Treasuries too soon. The Fed is still supporting the long end of the bond market via Operation Twist; we cannot rule out the possibility of some further QE and the Fed will not be raising rates in an election year.

Meanwhile, here is the historic chart of US 3m T-Bill Yields, which I assume Tad Rivelle is referring to. You can see the drop to just below 3% in August 1992 and it ranged in that region before surging in 1994. Approximately a decade later we had an even bigger rally. So we know that yields can rise rapidly when the trend changes. Here also is a weekly chart of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) which you mentioned. Tactically, I think bond shorts have to be well timed and actively managed because one's costs are increased by the yield.