Heavyweight Fight

Let’s get right to a graphic:

The above is an updated chart showing the correlation (or lack thereof) of TLT (iShares Barclay 20+ Year Treasury Bond Fund) versus the XLF (SPDRs Select Sector Financial ETF). This is a pair that I have been monitoring for a while – waiting for an opportunity to put on a mean reversion trade between the two as they are very much repelled from each other here.

You will notice that the two have touched twice in the past year (Dec 2010 & Aug 2011) and the expectation is that they will do so again in the future. It seems that the wide gap here presents a nice opportunity for a LT position to play for a touch in the future.

TLT is currently at +24.45

XLF is currently at -18.31

A nice gap to capture indeed.