Playing a Market Flooded with Treasuries

Gregor Macdonald has a great post on his blog, called "Debt-ology," which details an issue I've been mulling over myself: the flooding of the market with supply of treasuries. I put this up as food for thought, as well as providing a possible way to play this impending situation. Over on Twitter, many of us finance/market junkies have been discussing tickers ProShares UltraShort Lehman 7-10 Year Treasury ETF (PST) and ProShares UltraShort Lehman 20+ Year Treasury ETF (TBT).  A few months ago, these vehicles didn't even exist. As of two weeks ago, I am long TBT.

The consensus was that longer-term maturity paper was a better short. Monitoring technical analysis on this name doesn't necessarily make a whole lot of sense given what it is, but I have noticed that the ETF itself has seen support around $56/57 and resistance around $65, as noted in the chart below. Either way, I think this is a great longer-term play based on what we've seen lately in the supply of treasuries.

click to enlarge

 

Disclosure: The author is long TBT.