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Shorting Treasuries

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Jan 2, 2009 2:50 pm

Seems like the logical thing to do in this environement, but it has seemed logical for some time now, and yields have continued to come down.  What are people’s thoughts on when you think yields will start to rise again?

Jan 2, 2009 4:03 pm


Jan 2, 2009 6:55 pm

Yes, I think treasuries are a hell of a bubble, but no, I’m not ready to short them just the same.  Shorts in general are a tough area to consistently do well in and I’m more inclined to go long in areas I think are undervalued and due for a big jump.  Right now, I’m long in a bunch of areas…stocks, bonds (corps, munis bank loans & high yields), preferreds (Jeffrey Kleintop’s recent top pick on CNBC), etc., but I’m not touching treasures.  I can’t remember who said it, but it’s very true…the markets can remain irrational much longer than you can remain solvent.  It sucks to be right and still be broke.

  That being said, I'm in complete agreement that one of the biggest bubbles out there is long US Treasuries and it's not a question of IF that bubble will pop, but WHEN.
Jan 2, 2009 9:15 pm

Agreed.  That was sort of my concern.  People were shorting Treasuries back in the summer when yields were in the 4’s.  They got burried.  Who knows how to play a short on it right now, or how long it could last.  If the economy gets worse, strange as it sounds, people could continue piling into Treasuries and extend the T rally (they’re “so safe”).  Problem is, everyday investors are in for a world of hurt when that bubble bursts and they lose 10% on Good 'Ole Treasuries at some point.  And that loss will likely not be recouped in the short term, as it will generally only bring yields back to “normal”, and then as the unavoidable inflation kicks in down the road, it jsut compunds the problem.

Jan 2, 2009 9:36 pm

There have been a few articles in the WSJ warning of this strategy.  I say: be careful.  The treasury/fed have said that they can control these rates, and that they will keep them low for a while. 

That said, over the long run, is shorting the 30 year @ 2.6% a terrible idea?  Take a look at the historical data:

Jan 3, 2009 2:10 am

I’ve been buying TBT for a couple months for clients.  2-3 years from now that buy will look very good.  Been adding it at about 3-5% of a portfolio and then 3-5% in UUP to round out some non-correlated assets.

Jan 3, 2009 1:07 pm

But how bad do you lose your shirt in the short-term if yields don’t flip? I have seen mixed messages about short-ETF’s and their effectiveness over longer periods (in other words, not truly perfroming the way one would expect). But maybe that was more in reference to the 2x and 3x versions.

Jan 3, 2009 5:50 pm

The Treasury short was about the only thing Doug Kass got wrong last year. I don’t know if it’s quite like buying the ultra short oil etf at $148 oil but is seems like a good bet. I added to UYG and URE (ultra reit) in my own account but have just been buying the same old boring stock and bond funds.

  My new year's resolution is to KISS - nothing too tricked up.
Jan 10, 2009 3:31 am

Its a crowded trade, but one that I’m stickin’ with… because I don’t expect negative yields on Treasuries-- but you never know.