30 Year Bond Chart

If I am right, we all know bubbles, once they break down is almost always a decrease equally sudden return to a normal level. For bonds that could be a double-digit loss in relation to current levels.

What could be the catalyst for a sharp reversal of U.S. Treasury bonds?

In fact, there are several.

Let's start with the stock market rally off its low in November. So far, the S & P 500 rose 23% off that low in less than two months. I think the rally will continue for several months or until the beginning of the next "market unfavorable season" in April or May (although I'll be watching the charts and technical indicators closely) .

As I pointed out, since our buy signal on the market, just a normal bear market rally that retraces 50% decrease on the market before the decline resumed, would be as much as a gathering of 50% for S & P 500. If I am right, when have previously panicked investors, being paid a record low yield of holding bonds, begin to realize the profits they lose on the stock market, and bail bonds which just as suddenly 'they panicked them?

Then there is the strong increase in the supply of bonds is likely that the Treasury has to raise its level of debt to finance the massive bailout. We all know what an increase in the supply of anything done for the price.

And then there's the 'Big Picture' concern that has been around for years. When Japan, China and other world powers who have a high percentage of U.S. bond debt, decides the public debt of the United States became the outbreak simply too risky, and move some of these assets over obligations U.S. and other global assets?

It may be too early to take a position lower than bonds today. Going short with a bubble while it is still up can be costly, because they can go longer than anyone anticipated.

But it's not too early to prepare, by investigating the holdings to generate profits when bond prices decline.

Among them are the inverse Rydex Govt Bond Fund, symbol RYJUX, which aims to increase when 30 years down the price of bonds. Then there are some inverse leveraged ETF is designed to go up twice as fast as bond prices fall. They are the ProShare Ultrashort Lehman 7-10 year Treasury ETF, PST symbol, and the ultra-20 years and ProShare Lehman Treasury ETF OTC symbol.

Something to look anyway as 2009 gets underway.

Sy Smith publishes the financial website www.StreetSmartReport.com and a free daily Internet blog www.SyHardingblog.com . In 1999 he authored Riding The Bear - How to prosper in the coming Bear Market. His new book is to beat the market with ease! - Market Strategies double performance of the season proved!