We used to have fun commenting about the bond market, including Treasuries, Mortgages, Municipals, and Corporates. But that was before the dark times. Before deleveraging.
Contact the Author: accruedint at gmail.com
Wednesday, March 18, 2009
Told you...
Told ya on the Fed buying long bonds. For once I got a contrarion call right.
PS I do not trade TBT but periodically flip from long-short and back again on TLT. For this trade I stayed out after scalping TLT for the past 2 weeks on the short side.
"Sounds like a great plan right? What could possibly go wrong?
"Well. For one thing the Fed just invited a lot of speculative money into Treasuries. Unlike government investors (such as China and Japan) that have more of a "buy and hold" mentality the specs could care less about sacrificing the bottom line for political posturing.
"Speculators are TRADERS and take profit accordingly. Traders are also considered "nervous money" and are more prone to become bond vigilantes that punish profligate spending by selling in the face of large government deficits. Moreover not all traders are longs. While the Fed may have succeeded in punishing the Treasury shorts they are bound to return - especially as the pace of government auctions picks up in the following weeks.
Actually, the Fed said they were going to buy 2-10 year Treasuries. TBT is short 20+ Treasuries. There's a mismatch there. Does it matter? What say you?
It matters. If you look at the intra day on TBT yesterday, it gets crushed, then makes a substantial come back. The come back was when the NY Fed sent a memo to primary dealers explaining the 2-10 year part of the strategy.
MOSCOW, March 19 (Reuters) - China and other emerging nations back Russia's call for a discussion on how to replace the dollar as the world's primary reserve currency, a senior Russian government source said on Thursday.
Russia has proposed the creation of a new reserve currency, to be issued by international financial institutions, among other measures in the text of its proposals to the April G20 summit published last Monday.
Good call AccruedInterest. There are a lot of people who float opinions but don't have any sort of reasoning or even a theory to back it up. You clearly gave your thesis for what you expected it to happen and nailed it. It sort of makes up for some of the wrong calls in the past ;)
If you have time, and this may be an idea for future posts, can you give your thoughts on how this compares to past periods (say 1940's and 1950's) when the FedRes was buying debt. The environment isn't the same--back then the monetization was occuring under the quasi-gold standard for example--but it's still useful to know what the impact of all this may be. Maybe you can also compare it to the Japanese actions in the 90's.
Comment rules: All comments must contribute to the conversation All comments should be civil No comment should include any personal attacks, however minor, on the author or other commenter. Do not hawk your own website unless its a specific reference to the article If you post anonymously, please give some identifyer I will delete any comment which doesn't fit this criterea
Nice call, AI. That TBT mini-bubble (the misguided answer to the no less misguided notion that Treasuries were in a bubble) is bursting.
ReplyDeleteGreat call indeed. In terms of how much the 10Y rallied this was a bit of a black swan. We dont get to see yields drop by 50 bps very often.
ReplyDeleteNice call. TBT may be down but not out.
ReplyDeletePS I do not trade TBT but periodically flip from long-short and back again on TLT. For this trade I stayed out after scalping TLT for the past 2 weeks on the short side.
"Sounds like a great plan right? What could possibly go wrong?
"Well. For one thing the Fed just invited a lot of speculative money into Treasuries. Unlike government investors (such as China and Japan) that have more of a "buy and hold" mentality the specs could care less about sacrificing the bottom line for political posturing.
"Speculators are TRADERS and take profit accordingly. Traders are also considered "nervous money" and are more prone to become bond vigilantes that punish profligate spending by selling in the face of large government deficits. Moreover not all traders are longs. While the Fed may have succeeded in punishing the Treasury shorts they are bound to return - especially as the pace of government auctions picks up in the following weeks.
http://debtsofanation.blogspot.com/
2009/03/debts-of-spenders.html
Thanks as well, you helped some of us little guys avoid the TBT bloodbath today.
ReplyDeleteGood call, current administrations seem act like Polit Bureau now .
ReplyDeleteActually, the Fed said they were going to buy 2-10 year Treasuries. TBT is short 20+ Treasuries.
ReplyDeleteThere's a mismatch there. Does it matter? What say you?
It matters. If you look at the intra day on TBT yesterday, it gets crushed, then makes a substantial come back. The come back was when the NY Fed sent a memo to primary dealers explaining the 2-10 year part of the strategy.
ReplyDeleteNothing lasts forever...
ReplyDeleteMOSCOW, March 19 (Reuters) - China and other emerging nations back Russia's call for a discussion on how to replace the dollar as the world's primary reserve currency, a senior Russian government source said on Thursday.
Russia has proposed the creation of a new reserve currency, to be issued by international financial institutions, among other measures in the text of its proposals to the April G20 summit published last Monday.
http://www.reuters.com/article/
usDollarRpt/idUSLJ93633020090319
Good call AccruedInterest. There are a lot of people who float opinions but don't have any sort of reasoning or even a theory to back it up. You clearly gave your thesis for what you expected it to happen and nailed it. It sort of makes up for some of the wrong calls in the past ;)
ReplyDeleteIf you have time, and this may be an idea for future posts, can you give your thoughts on how this compares to past periods (say 1940's and 1950's) when the FedRes was buying debt. The environment isn't the same--back then the monetization was occuring under the quasi-gold standard for example--but it's still useful to know what the impact of all this may be. Maybe you can also compare it to the Japanese actions in the 90's.