Bonds!

[Blake Hampton]

I took the time to write that message to you @gfp and you're buying long bonds?

 

Take this as kind advice: you're gonna get fucked.

 

Edited April 11, 2025 by Blake Hampton

[gfp]

19 minutes ago, Blake Hampton said:

I took the time to write that message to you @gfp and you're buying long bonds?

 

Take this as kind advice: you're gonna get fucked.

 

 

That's what makes a market Kiddo!

[gfp]

31 minutes ago, Eldad said:

Gfp what is the idea? Rates will definitely be cut and long bonds bought by Feds when SHTF? 
 

 

 

I don't care what the Fed does for this trade it doesn't matter

[Red Lion]

21 minutes ago, Blake Hampton said:

I took the time to write that message to you @gfp and you're buying long bonds?

 

Take this as kind advice: you're gonna get fucked.

 

Let’s say the 20 year goes to 6% while the equity market crashes. I’d hardly call that getting fucked. Unless there’s some huge leverage involved. 
 

Shit I seem to lose more than that on my typical O&G investment including my recent foray into OXY. 

[Blake Hampton]

The message for anyone interested:

 

Quote

Also, on the above, I think inflation is the primary risk facing the global economy. I'm nearly certain that getting to that point could involve severe deflationary events—such as a crisis in Treasury markets—where there could be a large risk-off period coinciding with a rush to cash. That's historically how something like this happens. It's still extremely uncertain, but bottom line: I want to be the guy owning things that are worth something to others when all is said and done. Hence why I like oil.

 

The Treasury market literally almost had a 2020-like liquidity crisis on Wednesday morning. 2020 was an anomaly, a pandemic covering up systemic problems. April 9th was nothing more than a loss of faith.

[gfp]

3 minutes ago, Blake Hampton said:

The message for anyone interested:

 

 

The Treasury market literally almost had a 2020-like liquidity crisis on Wednesday morning. 2020 was an anomaly, a pandemic covering up systemic problems. April 9th was nothing more than a loss of faith.

 

Just allow for some probability that you don't have a 100% accurate handle on what's going on and how these markets work

[Gregmal]

I swear sometimes Blake has me convinced he’s a bot just meant to humor us. 

[Blake Hampton]

"When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience."

- Warren Buffett

All I can say is don't buy bonds. But none of you really care.

 

[Malmqky]

8 minutes ago, Blake Hampton said:

The message for anyone interested:

 

 

The Treasury market literally almost had a 2020-like liquidity crisis on Wednesday morning. 2020 was an anomaly, a pandemic covering up systemic problems. April 9th was nothing more than a loss of faith.

 

If you're 90% certain there's going to be a systemic crisis, how are you hedging the fact you might be wrong with respect to a 10% chance? Anything to capture the right tail? 

 

Why aren't you investing optimistically and hedging against a massive downturn instead?

Edited April 11, 2025 by Malmqky

[gfp]

8 minutes ago, Blake Hampton said:

The message for anyone interested:

 

 

The Treasury market literally almost had a 2020-like liquidity crisis on Wednesday morning. 2020 was an anomaly, a pandemic covering up systemic problems. April 9th was nothing more than a loss of faith.

 

I forget, Blake, what did the long bond do just after that momentary 2020 liquidity crisis?  

[Rainier]

I am a bond ignoramus. Can someone explain very briefly the thesis on why long duration treasuries make sense right now?

 

I’m not arguing against it, I am really just trying to understand. Is the thought that this is a temporary uplift in the long-term rate because of the economic chaos, and things will either settle down between US/China (and rates fall) or that we end up in a bad recession (and rates fall)? Like an eventual guaranteed win?

Edited April 11, 2025 by Rainier

[LC]

1 minute ago, Rainier said:

I’m not arguing against it, I am really just trying to understand. Is the thought that this is a temporary uplift because of the economic chaos, and things will either settle down between US/China (and rates fall) or that we end up in a bad recession (and rates fall)? Like an eventual guaranteed win?

 

Pretty much that's my read on the trade thesis

[thepupil]

14 minutes ago, Rainier said:

I am a bond ignoramus. Can someone explain very briefly the thesis on why long duration treasuries make sense right now?

 

I’m not arguing against it, I am really just trying to understand. Is the thought that this is a temporary uplift in the long-term rate because of the economic chaos, and things will either settle down between US/China (and rates fall) or that we end up in a bad recession (and rates fall)? Like an eventual guaranteed win?

 

bonds do well in a low growth/low inflation/recessionary environment. we could be going into one. of course, there is increased tail risk of losing reserve status / other bad shit happening, too that would be bad for bonds. i don't think it's more complicated than that.

 

the effectiveness of TLT will depend if we re-enter a period where the stock/bond correlation is negative...let's say the USD doesn't collapse but there is a recession, earnings fall, inflation is low, and rates go from 4.8% today to 3.0% a year from now (not my base case but hear me out). The OTR 30 yr in that case is 37% higher and you made 4.8% in coupon, so you've made 40% and stocks are down say...20%...so your 30 yr treasury outperforms stocks by 60% and you can sell it and go buy some cheap stuff...that's a stylized example of the theory at least

[Eldad]

6 minutes ago, thepupil said:

 

bonds do well in a low growth/low inflation/recessionary environment. we could be going into one. of course, there is increased tail risk of losing reserve status / other bad shit happening, too that would be bad for bonds. i don't think it's more complicated than that.

 

the effectiveness of TLT will depend if we re-enter a period where the stock/bond correlation is negative...let's say the USD doesn't collapse but there is a recession, earnings fall, inflation is low, and rates go from 4.8% today to 3.0% a year from now (not my base case but hear me out). The OTR 30 yr in that case is 37% higher and you made 4.8% in coupon, so you've made 40% and stocks are down say...20%...so your 30 yr treasury outperforms stocks by 60% and you can sell it and go buy some cheap stuff...that's a stylized example of the theory at least

Thanks. The crowd seems to be turning into Peter Schiff. That scenario seems very unlikely. Threw a couple bucks at some Treasury 20s and 6% 20 year A Corporates. 

[TwoCitiesCapital]

47 minutes ago, Rainier said:

I am a bond ignoramus. Can someone explain very briefly the thesis on why long duration treasuries make sense right now?

 

I’m not arguing against it, I am really just trying to understand. Is the thought that this is a temporary uplift in the long-term rate because of the economic chaos, and things will either settle down between US/China (and rates fall) or that we end up in a bad recession (and rates fall)? Like an eventual guaranteed win?

 

I'm trying to hedge a recession and high US valuations. 

 

Getting 4+% in intermediate treasuries and 5-6% in govt guaranteed mortgages that I can lock in, while inflation is currently well below those rates, seems a decent proposition to me - even if I'm wrong about a downturn. 

 

But I DO expect rates to go lower. I expect a lot of noise in yields until an official recession is determined/employment continues to decay. At that point, the Fed can cut, the term structure can assert itself, and money flows out of risk-on assets and short-duration instruments at 0% to intermediate treasuries yielding 3-4% bringing those yields down. 

 

Even if 20-year rates only drop from 4.5% to 3.5% - that's gonna get you somewhere close to a 15+% return, plus coupon, in an environment where nearly all else is negative. 

Edited April 11, 2025 by TwoCitiesCapital

[gfp]

2 minutes ago, TwoCitiesCapital said:

 

I'm trying to hedge a recession and high US valuations. 

 

Getting 4+% in intermediate treasuries and 5-6% in govt guaranteed mortgages that I can lock in, while inflation is currently well below those rates, seems a decent proposition to me - even if I'm wrong about a downturn. 

 

But I DO expect rates to go lower. I expect a lot of noise in yields until an official recession is determined/employment continues to decay. At that point, the Fed can cut, the term structure can assert itself, and money flows out of risk-on assets and short-duration instruments at 0% to intermediate treasuries yielding 3-4% bringing those yields down. 

 

Even if 20-year rates only drop from 4.5% to 3.5% - that's gonna get you somewhere close to a 15+% return, plus coupon, in an environment where nearly all else is negative. 

 

That's right - even a "bull steepening" (bullish for bond investors, not usually bullish for equity investors!) makes a 27 year strip like the ZROZ etf behave awfully well.

 

Can you really "lock in" those 6% gov. guaranteed mortgages though?  Seems like those will result in a lot of early principal repayments if you are "right".

[Castanza]

Why would China dump treasuries at a loss instead of just letting them mature and refuse to purchase more? I feel like this whole China and Japan are dumping doesn't make any sense. Granted I am by no means a bond guy but they would A) Be taking a massive loss...B) End up with USD and C) drive up the RMB. 

 

Haven't they tried to dump in the past to reposition their reserve with not so stellar results? Doesn't it make much more sense (If you're China) to negotiate new trade deals with say Europe and then transition that debt as it matures to Eu debt? 

[gfp]

22 minutes ago, Castanza said:

Why would China dump treasuries at a loss instead of just letting them mature and refuse to purchase more? I feel like this whole China and Japan are dumping doesn't make any sense. Granted I am by no means a bond guy but they would A) Be taking a massive loss...B) End up with USD and C) drive up the RMB. 

 

Haven't they tried to dump in the past to reposition their reserve with not so stellar results? Doesn't it make much more sense (If you're China) to negotiate new trade deals with say Europe and then transition that debt as it matures to Eu debt? 

 

The only reason China is selling treasury bonds is because treasury bonds are the reserve asset they hold US dollars in.  They need to sell treasury bonds to get actual US dollar cash to make available in their economy - through their state owned banks.  When there is a crisis moment like the other night, the Chinese currency was breaking DOWN - not going up against the dollar like virtually every other currency and Gold.  They are not selling the dollar except to intervene in their currency markets to try to keep the RMB from violating their control band around the midpoint they set each day.

 

Most people on the street think China is manipulating their currency to be weak and give them an unfair trade advantage.  The reality is that China's only interventions for years have been trying to keep their currency from violating the lower edge of their permissible trading band around the central midpoint.

 

China only sells T-bonds because they have to.  Not because they are making good on some geopolitical "flex."

 

Japanese institutions, on the other hand, are selling US fixed income assets because the economics of "borrow cheap yen, transform JPY to USD through derivatives market, buy higher yielding USD fixed income assets, profit" have changed and they are no longer earning a "carry" on their highly leveraged "carry trade."  Both the price of leverage in the bond market (the repo "haircut") and the price of the various Swaps they use to transform one thing into another thing have gone up with the tightening of global liquidity / deleveraging / risk aversion / whatever you want to call it.

JPY is going up - because those Japanese institutions are repatriating back into Japan.

 

Finally, our good old domestic mega-hedge funds and their "basis trade" is completely dependent on zero or almost-zero haircut repo financing for absurd amounts of leverage necessary to turn a small spread between futures and cash treasury pricing into a juicy enough return to get well paid as a massive global hedge fund.  Any tightening in the cost or terms of repo leverage and they reduce the size of their leverage -> reduce the size of their holdings -> sell the underlying assets (cash bonds).

 

But none of the above change the longer term behavior of US Treasury bonds if the US enters a recession.  It's just the little overnight freak-outs that grab headlines.  If the US goes into a real recession, not just some technical blip - ALL interest rates are going down and WAAAAYY down.  That's how recessions work.  Low interest rates = bad times.

 

 

CHINA - offshore Yuan - this is an intervention to halt the slide of a Weak CNY/CNH - not a weak dollar

 

Meanwhile in Japan - the JPY is actually strong from repatriation of assets back into Japan on a sustained basis.  No government intervention - just capital flows:

 

 

Edited April 11, 2025 by gfp

[Castanza]

18 minutes ago, gfp said:

 

The only reason China is selling treasury bonds is because treasury bonds are the reserve asset they hold US dollars in.  They need to sell treasury bonds to get actual US dollar cash to make available in their economy - through their state owned banks.  When there is a crisis moment like the other night, the Chinese currency was breaking DOWN - not going up against the dollar like virtually every other currency and Gold.  They are not selling the dollar except to intervene in their currency markets to try to keep the RMB from violating their control band around the midpoint they set each day.

 

Most people on the street think China is manipulating their currency to be weak and give them an unfair trade advantage.  The reality is that China's only interventions for years have been trying to keep their currency from violating the lower edge of their permissible trading band around the central midpoint.

 

China only sells T-bonds because they have to.  Not because they are making good on some geopolitical "flex."

 

Japanese institutions, on the other hand, are selling US fixed income assets because the economics of "borrow cheap yen, transform JPY to USD through derivatives market, buy higher yielding USD fixed income assets, profit" have changed and they are no longer earning a "carry" on their highly leveraged "carry trade."  Both the price of leverage in the bond market (the repo "haircut") and the price of the various Swaps they use to transform one thing into another thing have gone up with the tightening of global liquidity / deleveraging / risk aversion / whatever you want to call it.

JPY is going up - because those Japanese institutions are repatriating back into Japan.

 

Finally, our good old domestic mega-hedge funds and their "basis trade" is completely dependent on zero or almost-zero haircut repo financing for absurd amounts of leverage necessary to turn a small spread between futures and cash treasury pricing into a juicy enough return to get well paid as a massive global hedge fund.  Any tightening in the cost or terms of repo leverage and they reduce the size of their leverage -> reduce the size of their holdings -> sell the underlying assets (cash bonds).

 

But none of the above change the longer term behavior of US Treasury bonds if the US enters a recession.  It's just the little overnight freak-outs that grab headlines.  If the US goes into a real recession, not just some technical blip - ALL interest rates are going down and WAAAAYY down.  That's how recessions work.  Low interest rates = bad times.

 

 

CHINA - offshore Yuan - this is an intervention to halt the slide of a Weak CNY/CNH - not a weak dollar

 

Meanwhile in Japan - the JPY is actually strong from repatriation of assets back into Japan on a sustained basis.  No government intervention - just capital flows:

 

 

 

Awesome, thanks for the insightful response

[gfp]

7 minutes ago, Castanza said:

 

Awesome, thanks for the insightful response

 

It's worth about what you paid for it!  lol...  Too Long Didn't Read = everyone is LTCM now

 

(and off-the-run treasury bonds are surprisingly illiquid)

Edited April 11, 2025 by gfp

[Hektor]

14 minutes ago, Castanza said:

Awesome, thanks for the insightful response

+1

[Castanza]

3 hours ago, Blake Hampton said:

I want to be the guy owning things that are worth something to others when all is said and done. Hence why I like oil.

 

Are you taking physical delivery? 

[gfp]

Just now, Castanza said:

 

Are you taking physical delivery? 

 

Don't forget, Blake Hampton LIVES IN CUSHING!  His whole apartment is oil storage!  jk Blake, we love you, just a little Oklahoma joke

[Hektor]

4 hours ago, gfp said:

What a day!  My top three positions are ripping higher and I got to go long the long bond.  I'm out 

@gfp Why buy the ETFs instead of the 20yr US treasuries?

[gfp]

3 minutes ago, Hektor said:

@gfp Why buy the ETFs instead of the 20yr US treasuries?

I would buy the actual bonds if I was going to hold them.  For a trade that I scale into and out of I use these ETFs because they are liquid and easy.  It's not as liquid as TLT (not much is), but I like this ZROZ etf of 27-ish year average strips that Pupil mentioned.  There is a lot of juice on that type of STRIP!  Not for the faint of heart