Why to Short U.S. Treasury on the Next Uptick

Today the US Treasury 10Year note rebounded from yesterday's big selloff. Which is not very surprising given that lot of US based investors have now formed an opinion about 10Yr notes returning 1% or less. These investors derive their optimism from their faith in the stupidity of the Federal Reserve chairman and treasury secretary. But unfortunately, as clearly reflected in yesterday's selloff, these people do not govern the policies of the rest of the world.

With today's respite given or not, 10Yr notes will be heading towards 4.5-5% yield by the end of the year. But if the dollar starts its slump again, then effective yield of these notes will be lessr. So what that means to an investors outside of the US is that buying longer duration treasuries is a loss-making proposition.

I would rather suggest to go short on US treasury notes at any uptick day.

As of now, short term advice is to short US treasuries till there is room for profits and everybody else has jumped on the wagon. There are couple of ETFs that can be used for this purpose e.g. short IEF or ITE. There are also leveraged short ETFs themselves e.g. TBT and PST. However, using ETFs is less preferable if you can directly trade in treasuries.

I would have also recommended shorting GM, but I want to stay far from that stock because when government is so heavily involved in day-to-day operations and statements from a company, it's difficult to guess what next clueless statements or actions will achieve. If I was so excited about auto stocks right now I would rather put some money in the Hondas (HMC) and Toyotas (TM) of the world. But I think auto stocks are not a good buy right now.

Disclosure: No position in GM or ETFs discussed in the article at the time of writing.

Comments

[metricon:]

Your article expresses good ideas, but it is written poorly.

Thanks for the article as it expresses ideas that some investors have been contemplating for a while.

May 29 06:00 AM

[tunaman4u2:]

I dont know what the market was so excited about the bond auction yesterday... the yields are still very elevated... look at a 1 mo of the 10yr, even a 5d & you'll see yesterday was a SLIGHT pullback at best.
But hell... thats better than expected eh? HA!

May 29 08:12 AM

[Mad Hedge F...:]

keep hammering it. My long term Treasuries short recommendation has gone ballistic, hitting a new high of $57.40, and that the futures have crashed to 116 . The ten year yield has ratcheted up to 3.56%, a new high for the year, and the 30 year to 4.5%. The market is finally reading the writing on the wall. Who thought the sale of $100 billion in new paper was going to go well? The dealers are now choking on this stuff. I’m sure government agents are now scouring the country for new sources of high grade linen, the best raw material for printing new $100 bills. My calls don’t always work out this well this fast, so please indulge me, and let me savor the moment. Let the crash continue. Instead of focusing on the bankruptcy of GM, we should consider the United States government going under, as this cataclysmic move in federal debt seems to be presaging.

May 29 11:10 AM

[dave j:]

Why is it written poorly?


On May 29 06:00 AM metricon wrote:

> Your article expresses good ideas, but it is written poorly.
>
> Thanks for the article as it expresses ideas that some investors
> have been contemplating for a while.

May 29 11:38 AM

[Theta Guy:]

How can you say that you would have recommended shorting GM when there hasn't been shares available to short for a very long time. Also, the interest charged to borrow them makes a straight short undesirable.

May 29 11:40 AM

[urgentcare doc:]

Which brokerage will alow me to short ETF's?
Ameritrade will not let me.

May 29 12:21 PM

[RE Broker:]

You buy an ETF that shorts the particular sector you think will go down. TBT shorts (by 2X) the long bond.


On May 29 12:21 PM urgentcare doc wrote:

> Which brokerage will alow me to short ETF's?
> Ameritrade will not let me.

May 29 12:35 PM

[forge98:]

I appreciate the article. I wonder where the author believes long term yields need to be? Surely, they can't remain attractive at these yields. Is it 7, 8, 9 % for the 20 and 30yr? What does that type move bring a short of T notes in say TBT? It looks to me like 10% yields on 20 would put the TBT at around 140 NAV but I don't know.

May 29 03:39 PM

[waitaminit:]

Well Madman:
You must not be using TBT as your short. Ballistic is right--down. Tuna -- you're right--the market did respond--too much or not--bad day for this hedge.
Too much unanimity here--next thing you know, we'll see serial deflation--not inflation.
One of you guys said keep your stops on a short leash--short enough for you?

May 29 04:11 PM

[urgentcare doc:]

I understand that TBTshorts TLT (theoretically)
But there is a significant degradation when you hold these ETFs.
I tried to shot SCO (oil short) when I got frustrated with USO. Myself as well as others are at at loss to find a brokerage firm to short ETFs. The only reference I can find is regarding a discount brokerage in Canada. Has anyone had any luck using discount US brokerages?

May 29 08:02 PM

[marketman54:]

Interest rates going up, printing more money to get us some hyper Jimmy Carter inflation, it's all rolling down the street.

Oil, gold and treasury shorts are the long play!

May 30 11:18 AM

[The Geoffster:]

Seems so easy, but I'm liking it.


On May 30 11:18 AM marketman54 wrote:

> Interest rates going up, printing more money to get us some hyper
> Jimmy Carter inflation, it's all rolling down the street.
>
> Oil, gold and treasury shorts are the long play!

May 30 10:25 PM