Decision Time

So I looked at the 30-yr. bond today to see the yield had fallen 20 (20!!!!!) bips to 3.77%. Since this is well below my revaluation point of 4.00%, it was time to decide what to do.

So, I made a little list:

Reasons to sell:

1. 20 bip moves are very rare
2. I might be able to buy back in @ 4.00%

That was about all I could come up with. But you don't get a 5% move in the long bond every day.

I also listed some reasons to hold on:

1. A big fall through the floor usually keeps going
2. If it bounces back to 4.00% I can buy more anyway, because I'm only halfway in
3. I've already taken my 4% profit for this month, and both trades were too early
4. The recent rally in bonds has taken the 10-yr from 3.9% down to 3.2%, or a 0.7% difference. The difference in the 30-yr. is 0.50%, which is a closer correlation than I was expecting. This tells me that the long bond will rise more than I thought, as I expect the 10-yr. to approach 2.5% next year.
5. And finally, with October's CPI report, the forward annual inflation rate is -12%. Deflation, even at -1% will be humongously bullish for bonds.

So I'm keeping the bonds. I will re-evaluate when it goes to 3.60%, or the ten year gets to 3%.