Jump to content

30 Year Bond


Recommended Posts

30 Year Treasuries are at 2.64%...anyone short?

 

I believe if one is looking for a inflation hedge, shorting the long bond right now is a much cheaper (from a value investor perspective) way of doing it as compared to going long gold.

 

Thoughts?

 

Does anyone actually own any treasury bonds or treasury bond funds with a maturity longer than 10 years?

Link to comment
Share on other sites

Buy an ETF - http://www.google.com/finance?q=NYSEARCA%3ATBT

 

You could lose your shirt speculating though.

 

I wouldn't do any ultrashort (levered product).  These will have value erosion from the funds selling low and buying high every day.  If anything I would short an ultralong product. 

 

Aside from this, you could also buy puts on TLT, short TLT, or short futures contracts/options

Link to comment
Share on other sites

Since the lose is conceivably limited as long-term rates will not go below zero.  I say this knowing that recent rates on short-term notes have on occasion turned negative.  Why not short the ProShares Ultra 20+Year (UBT) as you may have the value erosion working for you?

 

 

Cheers

JEast

Link to comment
Share on other sites

Since the lose is conceivably limited as long-term rates will not go below zero.  I say this knowing that recent rates on short-term notes have on occasion turned negative.  Why not short the ProShares Ultra 20+Year (UBT) as you may have the value erosion working for you?

 

 

Cheers

JEast

 

I have looked into this but apparently my broker (Interactive) has had trouble in the past obtaining shares of UBT to short, and it can be expensive. 

Link to comment
Share on other sites

Shorting a double long or short fund is a no brainer.  Unfortunately, impossible to borrow.

 

Since the lose is conceivably limited as long-term rates will not go below zero.  I say this knowing that recent rates on short-term notes have on occasion turned negative.  Why not short the ProShares Ultra 20+Year (UBT) as you may have the value erosion working for you?

 

 

Cheers

JEast

 

I have looked into this but apparently my broker (Interactive) has had trouble in the past obtaining shares of UBT to short, and it can be expensive.

Link to comment
Share on other sites

For the record I am short some of the 30 year through futures.  However, I look at it less as a speculative position and more as a hedge position.  I tend to typically carry a small margin balance, and in addition I have been in the market for buying a rental, for which I would need a mortgage. 

 

The margin balance is based off of short term rates.  I cannot personally enter into a libor swap in order to lock in rates, but by shorting the 30 year future I get similar economics, essentially locking in a borrowing cost.

Link to comment
Share on other sites

I would read the Holy Grail of Macroeconomics by Richard Koo before shorting govt. bonds in a material way.  The book explains why, among other things, why govt. bond yields get and stay so low during balance sheet recessions like the one we're in now.  It's one of the best macro books I've read - in the sense that I actually learned something and his model of how balance sheet recessions work fits.

Link to comment
Share on other sites

I would read the Holy Grail of Macroeconomics by Richard Koo before shorting govt. bonds in a material way.  The book explains why, among other things, why govt. bond yields get and stay so low during balance sheet recessions like the one we're in now.  It's one of the best macro books I've read - in the sense that I actually learned something and his model of how balance sheet recessions work fits.

 

 

Precisely why I am only half kidding when I say to buy the TBT once it hits $0. Understanding the BSR dynamic saves so much time, effort and capital wasted on endeavours such as the one Kyle Bass is currently pursuing.

Link to comment
Share on other sites

The premise of the balance sheet recession and sustained low rates strikes me as fairly sound at the moment.  I would be disinclined to short any bonds for the reason that nothing may happen at all for years.

 

An alternative is to buy shares of companies who can issue long bonds at close to the 10 or 30 year rates, turn around and make buckets of money off it.  JPM did this last summer.  I recall MSFT and GE doing this as well.  I am sure there were others.  Of course JPM squandered the advantage.

 

Long leap pos: GE, JPm

Link to comment
Share on other sites

Is that the current yield or the yield to maturity?  Because the YTM can go below zero if people are willing to take a capital loss if they hold to maturity.

 

YTM.  While that has happened with the 90 day bonds, I don't see the 30 year going to a negative yield.  Anything can happen, but I think it is a lot less likely to have the entire treasury curve below 0, as opposed to a small portion of the curve below 0.  I think the small portion (90 day bonds) went below 0 at times due only to supply/demand issues in the short term, and it did not stay there very long.  Even today with the 10 year hitting new lows, the 90 day bond is positive yield.

Link to comment
Share on other sites

The premise of the balance sheet recession and sustained low rates strikes me as fairly sound at the moment.  I would be disinclined to short any bonds for the reason that nothing may happen at all for years.

 

An alternative is to buy shares of companies who can issue long bonds at close to the 10 or 30 year rates, turn around and make buckets of money off it.  JPM did this last summer.  I recall MSFT and GE doing this as well.  I am sure there were others.  Of course JPM squandered the advantage.

 

Long leap pos: GE, JPm

 

+1

 

I expect BRK and BNSF to issue debt any day now...

 

I mean good grief, Buffett could issue $10 Billion at hardly any cost, and turn around buy a huge slug of AIG at 1/2 IV.

 

Long leap pos AIG

Link to comment
Share on other sites

The premise of the balance sheet recession and sustained low rates strikes me as fairly sound at the moment.  I would be disinclined to short any bonds for the reason that nothing may happen at all for years.

 

An alternative is to buy shares of companies who can issue long bonds at close to the 10 or 30 year rates, turn around and make buckets of money off it.  JPM did this last summer.  I recall MSFT and GE doing this as well.  I am sure there were others.  Of course JPM squandered the advantage.

 

Long leap pos: GE, JPm

 

+1

 

I expect BRK and BNSF to issue debt any day now...

 

I mean good grief, Buffett could issue $10 Billion at hardly any cost, and turn around buy a huge slug of AIG at 1/2 IV.

 

Long leap pos AIG

 

Yes, I couldn't agree more!  Why waste your time shorting treasuries which could remain stagnant for years, and the natural decay of any leveraged ETF will waste away your investment?  You are much better off waiting and investing in companies that will take advantage of such low rates...especially those that aren't leveraged and can take on considerable debt to buy out businesses selling for cheap.  These are very interesting times, but times that both recent experience and history tells us are nothing new.  Cheers!

Link to comment
Share on other sites

As a follow-up for negative returns, Germany's two-year note has been negative for two days.

 

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/06/01/bloomberg_articlesM4XDB36JIJUY01-M4XIO.DTL

 

Cheers

JEast

 

I don t get how anything could have negative interest rate...why would anyone buy those?

What, you re going to pay someone to hold your cash?

Only thing I can think of is that you think that some greater fool will come and buy at a higher price (and lower interest rate).

Link to comment
Share on other sites

"The German two-year yield slid to as low as minus 0.002 percent"

 

As I said before, I think when these have crossed 0, it is only marginally crossed 0, and I believe it is due to supply/demand issues in the short run.  -0.002% is basically 0%. 

 

If the curve went from 2.5 to 0 or 2.5 to -0.002% it is the difference between losing 75% and losing 75.06% on the trade.  Not a big difference.

Link to comment
Share on other sites

Biaggio,

 

What, you re going to pay someone to hold your cash?

 

Imagine you have $100m that you want to save.

 

What are your alternatives?  You don't have FDIC protection (and there is no reasons why bank accounts can't have negative rates), and you can't put that in a safe under your bed.

 

Sure, regular Joe's with $5,000 don't have to accept negative rates, but they aren't the majority of deposits.

 

Not arguing that we will see those rates, but I'm just saying that there is some reason for why T-Bill yields sometimes go negative.  It could happen for longer dated issues too.

 

Ben

Link to comment
Share on other sites

Biaggio,

 

What, you re going to pay someone to hold your cash?

 

Imagine you have $100m that you want to save.

 

What are your alternatives?  You don't have FDIC protection (and there is no reasons why bank accounts can't have negative rates), and you can't put that in a safe under your bed.

 

Sure, regular Joe's with $5,000 don't have to accept negative rates, but they aren't the majority of deposits.

 

Not arguing that we will see those rates, but I'm just saying that there is some reason for why T-Bill yields sometimes go negative.  It could happen for longer dated issues too.

 

Ben

 

To protect $100m you only need to purchase 400 certificates of deposit -- each one from a different bank.

 

The $250,000 in FDIC protection is only the limit of protection that you have from each individual bank.

Link to comment
Share on other sites

Biaggio,

 

What, you re going to pay someone to hold your cash?

 

Imagine you have $100m that you want to save.

 

What are your alternatives?  You don't have FDIC protection (and there is no reasons why bank accounts can't have negative rates), and you can't put that in a safe under your bed.

 

Sure, regular Joe's with $5,000 don't have to accept negative rates, but they aren't the majority of deposits.

 

Not arguing that we will see those rates, but I'm just saying that there is some reason for why T-Bill yields sometimes go negative.  It could happen for longer dated issues too.

 

Ben

 

To protect $100m you only need to purchase 400 certificates of deposit -- each one from a different bank.

 

The $250,000 in FDIC protection is only the limit of protection that you have from each individual bank.

 

I use CDARS with my larger clients

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...