Seasonal Bonds Strategy using TMF

Recently Jay Kaeppel of Jay On The Markets posted an update on the Seasonal Bonds Strategy using TMF. The gist of the strategy is straightforward,  “Long TMF on the last 5 day of each month” 

I’ve posted the article below. 

Here’s a seasonal chart of the last 3 years with the average of the 3 years (black line). I colored the last 5 trading days of the average line in yellow to see what Jay was referring to. 8 of the 12 months were positive, 2 flat and 2 negative. Looks pretty good. At the bottom of the page you can see the returns this strategy yields.

BTW this Chart type, known as a seasonality chart will be included in the next AIQ TradingExpert Pro release this fall (OK marketing bit over) 

On 3/15/15 I wrote about an even more aggressive strategy using triple-leveraged ticker TMF that tracks long-term t-bonds using leverage of 3-to-1.
So of course the bond market rewarded my “brilliance” with a swift kick in the you know where in the months of March and April 2015 and especially in August 2015.
This would typically be enough to cause many people to go, “Well that guy’s and idiot” and to move on.  But fortunately in this case, the market is a marathon and not a sprint.
Figure 1 displays the results generated by:
*Holding long 1 t-bond futures contract ONLY for the last 5 days of each month since 12/30/1983
*Holding long 1 t-bond futures contract during all other days since 12/30/19831
Figure 1 – Long 1 t-bond futures contract ONLY during last 5 trading days of month (blue) versus long 1 t-bond futures contract on all other days  (red); 12/31/1983-8/12/2016
The results sort of speak for themselves.
After I wrote about my aggressive TMF strategy, TMF (of course) got hit very hard (as triple leveraged ETFs will do from time to time, hence the use of the words “aggressive” and “risky”), in March 2015 (-4.5%), April 2015 (-5.3%) and especially in August 2015 (-11.5%).
Still, as you can see in Figure 2, things have rebounded nicely since (hmmm, maybe I should be worried).2
Figure 2– Growth of $1,000 Long ETF ticker TMF ONLY during last 5 trading days of month (blue) versus long TMF all other days; (red); 12/9/2009-8/12/2016
So far the “Long TMF on the last 5 day of each month” strategy is up +31.8% for the year in 2016.
Year Last 5 TDM Long TMF
2009* +12.9%
2010 +33.4%
2011 +15.2%
2012 +35.7%
2013 +6.7%
2014 +45.7%
2015 +6.8%
2016** +31.8%
*-Starting 4/16/2009 when TMF started trading
**-Through 8/12/2016
So did this odd little strategy “weather the storm” and “take the market’s best shot” in 2015 and now it is “smooth sailing”?  Probably not.  Make no mistake – this is a strategy that entails a great deal of risk.  Still, for aggressive traders looking for an “edge”, it might be worth a closer look.
Jay Kaeppel

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