Treasury bond sell-off is now a buying opportunity

Investors over-shoot by over-reading Fed's tea leaves.

All those investors rushing to get out of Treasury bonds before the Fed starts hiking interest rates might want to slow down and take a breather.
With the yield on the 10-year Treasury up more than 50 basis points over the past 30 days and having hovered above 2.1% all week, some market watchers are saying the bonds have entered value territory.
“At this point I think we’ve fully taken out the premiums and I think the market has over-sold a little bit,” said Jake Lowrey, a portfolio manager at ING U.S. Investment Management.
The benchmark 10-year Treasury’s yield rally kicked off at the start of the holiday-shortened week on Tuesday morning when most analysts expected international buyers to step in as the yield crested 2.2%.
The yield did pull back a bit on Wednesday to around 2.12%, but by mid-day Friday it was back up to near 2.2%.
The market is reacting to some mixed signals from recent comments from Fed Chairman Ben Bernanke that suggested the economy might be getting strong enough to support a tapering of the current quantitative easing policy that includes monthly purchases of $85 billion worth of Treasury bonds and agency mortgages.
But even the most ardent Fed watchers aren’t expecting any real tapering before at least next year.
“People looking for a steep and protracted increase in rates will be disappointed, because if they go into cash they will have a hard time finding yield, and they may have a hard time finding a decent entry point back into bonds,” said Robert Tipp, chief investment strategist for fixed income at Prudential Inc.
“I think it’s a good point in the cycle right now to underweight cash, but not underweight bonds,” he added. “There’s a risk we could have over-shot on the bond selloff, and I think we’ve gone above fair value at this point.”