Shorting Treasuries?

[bobp]

I am short a 20 year treasury index via TBT which is a 2x short etf. Leaving aside the vehicle, TBT, which may be the wrong way to do it, why would it be wrong to be short treasuries?

 

Just this weekend I heard Robert Kleinschmidt on Consuela Mack saying treasuries have a "tremendous amount of risk" without much upside. A month or so ago Wilbur Ross on cnbc said they are recommending customers borrow as much long term cash as they can at fixed rates, and said that if ten year treasury reverts to its average yield from 2000 to 2010, it will decline by 23%.

 

I've heard numerous smart investors calling treasuries overpriced or a poor investment risk. I understand that rates could stay low as in Japan but isn't it more likely that we revert somewhat to the mean? And yes in some sort of panic we have a flight to quality. I understand that.

 

And maybe high yield is more vulnerable than treasuries.

 

Kleinschmidt ,btw, said that the realization that inflation will increase will come in an "emperor's new clothes" kind of moment, not gradually. I like Wealthtrack, and the shows are available on the website.

 

I know someone must think this is terribly wrong. I'd appreciate any comments.

 

 

 

 

 

 

 

 

[Palantir]

I want to know this too...I would probably short Treasury ETFs rather than TBT though. Shorting T's would give you a really low cost of capital....and even a low, stable investment could be levered up...

[Guest wellmont]

i own tbf and tybs.

[ItsAValueTrap]

I wouldn't go long the leveraged ETFs.

 

1- They have excessive trading costs and could lose 5-20% of its "assets under mismanagement" just from trading costs.  Note that they often don't trade liquid products and they have to trade every day.  (I don't know the situation for TBT.)

2- You are better against excess volatility / you are betting against Mr. Market.

3- And of course you have to pay the management fee, which is a little excessive.

 

http://glennchan.wordpress.com/2012/11/07/leveraged-etfs-a-market-inefficiency/

[muscleman]

I think it is better to short the 2x treasury long ETF, or directly short the 1x treasury long ETF.

 

2x ETF has a lot of trading costs, so if you short it, even if the underlying price stays the same, the ETF will drop.

[bobp]

Thanks for the replies. It does seem to make sense to short a long fund rather than the reverse.

 

I just saw this in Bloomberg:

"Hedge-fund managers and other large speculators held a net-short position in 10-year note futures for the first time in almost two months amid speculation Federal Reserve officials may taper the pace of asset purchases."

 

http://www.bloomberg.com/news/2013-05-17/hedge-funds-shift-to-bearish-bets-on-treasury-10-year-notes.html

[muscleman]

Thanks for the replies. It does seem to make sense to short a long fund rather than the reverse.

 

I just saw this in Bloomberg:

"Hedge-fund managers and other large speculators held a net-short position in 10-year note futures for the first time in almost two months amid speculation Federal Reserve officials may taper the pace of asset purchases."

 

http://www.bloomberg.com/news/2013-05-17/hedge-funds-shift-to-bearish-bets-on-treasury-10-year-notes.html

 

I think this is a good idea with very limited risk. The yield cannot go below zero, so there is a ceiling on these 10 y note prices.

 

I think you can either follow them to short the futures, which has the lowest margin requirement and trading cost, or you can short the 1x long ETF.

[Guest wellmont]

which is the best ust etf to short? symbol? thanks!

[JBird]

It seems obvious to me that the investor shorting treasuries now will generate a capital gain in the long run; the inevitable rise in interest rates will see to that. But just how successful will the investment be? It's largely dependent on when interest rates rise, and by how much. Heeding Aesop's investment insight, I'm shying away from the investment myself because I can't answer those questions.

[muscleman]

It seems obvious to me that the investor shorting treasuries now will generate a capital gain in the long run; the inevitable rise in interest rates will see to that. But just how successful will the investment be? It's largely dependent on when interest rates rise, and by how much. Heeding Aesop's investment insight, I'm shying away from the investment myself because I can't answer those questions.

 

I am not saying I will do this. I am just saying if people who have decided to short it, which symbol to go with.

You can definitely short the TLT, but if another crisis event shows up, this thing will move back to 130 quickly.

 

I think buying cheap stocks still make better sense to me.

 

[PlanMaestro]

ah, "The Widowmaker."

 

http://rdd.me/ztfnbpep