The Fed Won't Tighten - So SHY's a Buy

I think the 2 year part of the curve is oversold. I think (I know) the economy is weak. It is an election year and the unemployment rate just jumped to 5.5 percent. The housing market is a debacle. The Fed’s favored metric - the core PCE - has strayed very little from the top end of its prescribed  range. Hemingway and Fitzgerald are not writing novels about World War One, and this is not the Weimar Republic.

The credit markets are frayed frazzled and fragile. Recovery has barely begun.

I bought some iShares Lehman 1-3 Year Treasury Bond ETF (SHY) this morning because I think that any move to higher rates is a dream deferred. The Fed won't tighten, and these are fair levels to establish long positions in the front end of the yield curve.

Disclosure: Long SHY

Comments

[Larry House:]

I hope you are right. I have increased my bond allocation through 2009, holding individual corporate bonds to maturity.

2008 Jun 10 12:01 PM

[buyitcheap:]

I don't think this is unreasonable - stay long the short end and short the long end.

2008 Jun 10 12:56 PM

[Moise Levi:]

I have a target for SHY at 81.8$ ! (3 months max)

2008 Jun 10 01:13 PM

[adan:]

great info, nice analysis with it too - helps trying to get a handle on all the bond stuff - thanks!

2008 Jun 11 09:01 AM

[corkfish:]

Wrong. I love these guys who talk their book. Unemployment at 5.5% is scary?? Rates this low are ridiculous and the massive liquidity only spurs bubbles. So we should leave rates alone so this clown won't loose money on his bond portfolio? LOL.

2008 Jun 13 11:44 AM