Anybody else short US 30 Bond

[Topsurfi]

the Fed freezed the long bond rates at 2.5 percent from 1942-1951. Bernanke already mentioned this in his 2004 paper as a method to long term keep interest rates low.
So basically if you get short ZB you bet that Bernanke will fail in his effort to keep 30years at his 2.5% target.

You may wonder how he can do this.

He can buy long term bonds from open market. But he has to get the money from somewhere right ?
So he has 2 options. The first is to sell more short term bonds (I doubt there are enough buyers) or he can simply increase the balance sheet (=print money). I think he will opt for increasing the balance sheet. If you take a look at the balance sheet it has already exploded since end of last year.
The drop in long term yield up to now was not due to direct FED intervention but it was the market expectation that the FED has the power to put the long term yield where it wants it to be.

But I wonder if beeing long ZB is really such a low risc deal as these traders may think (never fight the FED) because the balance sheet is already balloning and the FED may run out of ammun sooner or later.

 

[JamesVU2000]

Bernanke is a fucking moron. Do you see any acitivity going in your city? I dont see anything in Chicago.
The fed cant make institutions lend to unprofitable businesses

 

[comintel]

According to

http://www.bloomberg.com/apps/news?pid=20601009&sid=aAT4suWMAG_A&refer=bonds :

"Fund managers surveyed by Ried, Thunberg & Co. were the most pessimistic on record about Treasuries, based on a survey of expectations for the end of June. The sentiment index dropped to 35 for the seven days ended Jan. 2 from 36 the week before. The economic analysis firm in Jersey City, New Jersey, surveyed 22 fund managers controlling $1.18 trillion. A reading below 50 means investors expect prices to fall."

 

[invertedCurve]

like I said on 12/17/08
"a lot of supply coming in January."
22Billion 4 week, a new 30 billion 3 yr and a 12 billion 10 yr reopening, sell rallies Mortimer sell! Well we might play with 2.50 yield in TY for a while...equates to about 123.21ish in the Futures-(meaning that is where fuutures were when the TY cash was yielding 2.50%) hopes that helps. But when this thing gets going jump on board and do not get run over!

 

[Topsurfi]

Quote from scriabinop23:

I hear barrons had an article on getting short treasuries..

Once the idea gets mainstream, it'll evoke even more pain.

Not a good sign for the treasury shorts. Watch ZB sell 2 points on monday, then recover 5 the rest of the week.

so far you are right (ZB down more than 2). Lets see if they can recover.
The coming crash of the long term Bonds will be huge and fast with ZB <70 as people begin to realize that having money in US Bonds is the opposite of a safe place to have your money.
This will be the moment where stocks and housing will rally despite lousy earnings because people will feel safer in a google stock than a 30year Bond.
But there is a high uncertainty in getting the timing right in this trade. Can take some more years.
´
Scria:
I like your blog and your comments. One of the few bright posters here on ET.

 

[Moe]

Wow the Long Bond is down more

Maybe the Federal Reserve gave up on "bring down long term lending rates"

 

[comintel]

Quote from Moe:

Wow the Long Bond is down more

Maybe the Federal Reserve gave up on "bring down long term lending rates"

There are huge auctions of T Bonds taking place tomorrow and throughout this week. I imagine that dealers are "pre-selling" what they will buy in the auction.

The picture should become clearer with the auction tomorrow.

Personally I doubt that the Fed has given up on bringing down long term rates. It is a key part of their plan to bring down mortgage rates to restart the economy and create jobs. Unemployment is going to continue to rise and avoiding that is a part of the legislated mandate of the Federal reserve, so they will not give up on it.

That said, these huge swings are very hard to explain. I do not think the Fed is going to be at all happy with them though. They hint at instability and I suspect that will give ammunition to those within the Fed who are arguing for Fed intervention by direct purchase of TBonds.

 

[scriabinop23]

Quote from Topsurfi:

so far you are right (ZB down more than 2). Lets see if they can recover.
The coming crash of the long term Bonds will be huge and fast with ZB <70 as people begin to realize that having money in US Bonds is the opposite of a safe place to have your money.
This will be the moment where stocks and housing will rally despite lousy earnings because people will feel safer in a google stock than a 30year Bond.
But there is a high uncertainty in getting the timing right in this trade. Can take some more years.
´
Scria:
I like your blog and your comments. One of the few bright posters here on ET.

Thanks. I have some TBT (not a sizeable enough position to matter though), but also have quite a bit of home eq debt (used to finance some foreclosures) I need to lock in at long term rates.... Hope ZB holds up for three months.. Then it can take a dump.

 

[Topsurfi]

Quote from comintel:
I do not think the Fed is going to be at all happy with them though. They hint at instability and I suspect that will give ammunition to those within the Fed who are arguing for Fed intervention by direct purchase of TBonds. [/B]

the moment of truth comes when the FED indeed starts buying TBonds. Up to now they have not but only made verbal interventions.
Now that the TBOND crashed it puts them a little under pressure to demonstrate that they indeed have the power to keep long term rates low.
They can only buy BONDS by increasing further their balance sheet (=print money). But at some time they will have to sell them back to the market (if they want to keep the balance sheet stable) so this enormous amount of future selling will not really attract people to buy into US Bonds. The FED buying Bonds is only delaying an increase in Bond yield and I doubt they can buy much time.
I have already been shorting ZB but I will go full power only after FED failed in their effort to buy long term Bonds.

 

[zboy2854A]

The technicals look very nice for the short side. So far, we just completed the head of a perfect head and shoulders, and if form holds, we'll trade sideways here for a couple weeks to form the right shoulder before the next leg down.