Who are the idiots buying bonds for 1% interest?

Quote from The Big D:

This argument doesn't make much sense - in order for a trader who buys bonds at < 1% yield to make money on price, he has to find someone else willing to buy them at an even lower yield. Even if multiple short term traders are involved, eventually someone has to hold the bonds to maturity.

What doesn't make sense is why that someone would be willing to accept a < 1% yield.
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It makes perfect sense. Have you been watching short term rates lately? They are on fire. The 2's, 3's and 5's are exploding. Look, people trade rates like they trade pork bellies. They trade them to make money. And the longs are making a killing.

And you obviously missed my comment above about CDS's. Look, you need to understand the big picture here. This is a trillion dollar market. People are buying cash or trading the basis or spreading one against another to find value. And there is value all over the yield curve. And this value gets heavily leveraged and a lot of guys are making a lot of money.

You are seeing it as a plain vanilla trade. It is anything but. Plain vanilla trades went out the door in the early 80's.
 
Quote from Maverick74:

It makes perfect sense. Have you been watching short term rates lately? They are on fire. The 2's, 3's and 5's are exploding. Look, people trade rates like they trade pork bellies. They trade them to make money. And the longs are making a killing.

And you obviously missed my comment above about CDS's. Look, you need to understand the big picture here. This is a trillion dollar market. People are buying cash or trading the basis or spreading one against another to find value. And there is value all over the yield curve. And this value gets heavily leveraged and a lot of guys are making a lot of money.

You are seeing it as a plain vanilla trade. It is anything but. Plain vanilla trades went out the door in the early 80's.
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This is a non-explanation. The prices of 2s may have been exploding, but it's not going to do any more exploding. Bond have a price cap - no one's going to pay more than the principle plus the remaining coupons no matter what happens. And at 1% yield, we're approaching that cap.

Saying it's not a vanilla trade explains nothing. Why, given that short to mid term treasuries are at a point where they basically can't go up and yield nothing, would they be advantageous as part of any more complicated position? If XYZ spread with long treasuries is good, you have to explain why just XYZ wouldn't be better.
 
Quote from The Big D:
What's so heinous is the risk-reward profile. If the bet comes right, and we have a lost decade, you make 1% on your capital. If you're wrong, and yields go up, you could lose 20% on price. Cash seems a far-superior position.
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Well, what sort of rate are you expecting to get on your far superior cash pos'n?
 
Quote from Martinghoul:

Well, what sort of rate are you expecting to get on your far superior cash pos'n?
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Zero of course, but you get to skip the brutal interest rate risk.
 
Quote from The Big D:

This is a non-explanation. The prices of 5s may have been exploding, but it's not going to do any more exploding. Bond have a price cap - no one's going to pay more than the principle plus the remaining coupons no matter what happens. And at 1% yield, we're approaching that cap.

Saying it's not a vanilla trade explains nothing. Why, given that short to mid term treasuries are at a point where they basically can't go up and yield nothing, would they be advantageous as part of any more complicated position? If XYZ spread with long treasuries is good, you have to explain why just XYZ wouldn't be better.
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If you think the 5's are done exploding, why don't you short some and get back to me on that. LOL. And furthermore, I was not aware there was a cap on rates. LOL. Although I'm sure the bond shorts right now wish there was one. :)
 
Quote from Maverick74:

It makes perfect sense. Have you been watching short term rates lately? They are on fire. The 2's, 3's and 5's are exploding. Look, people trade rates like they trade pork bellies. They trade them to make money. And the longs are making a killing.

And you obviously missed my comment above about CDS's. Look, you need to understand the big picture here. This is a trillion dollar market. People are buying cash or trading the basis or spreading one against another to find value. And there is value all over the yield curve. And this value gets heavily leveraged and a lot of guys are making a lot of money.

You are seeing it as a plain vanilla trade. It is anything but. Plain vanilla trades went out the door in the early 80's.
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When you find a smooth-talking post like this one where there are expressions like "longs are making a killing", time has changed since the 80s, agreement with past information to project "authority" , and if the poster sells some sort of service, I would consider getting ready to leave the long side, and consider joining the opposite.

I would not be surprised if bonds make the top at the time of the above posting.
 
Quote from Maverick74:

If you think the 5's are done exploding, why don't you short some and get back to me on that. LOL. And furthermore, I was not aware there was a cap on rates. LOL. Although I'm sure the bond shorts right now wish there was one. :)
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I actually meant to type 2's, not 5's. I think it's possible 5's will fall a little more, but I'm perfectly comfortable short 2's. I took my position Weds, and so far so good.

And if you don't understand that there's a price cap on bonds, you have no business pontificating in this thread. Sorry. That's bonds 101.
 
Quote from tradingjournals:

When you find a smooth-talking post like this one where is there expressions like "longs are making a killing", time has changed since the 80s, use and agreement with past information to project "authority" , and if the poster sells some sort of service, I would consider getting ready to leave the long side, and consider joining the opposite side.
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I did not understand a word of this post. I'm going to have to get out the old gibberish translator again. LOL.
 
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