I went long treasuries as a pure trade. There are rallies in bear markets and I believed we were set up for a counter trend rally in bonds for the following reasons:
- Rates were getting to a point where they were completely choking off the mortgage market. That helps treasuries in two ways. It slows down the economy, which is good for treasuries. In addittion, mortgage bonds compete with treasuries for investor money therefore a smaller supply of mortgage bonds is bullish for treasuries.
- The Summer is a seasonally strong period for treasuries.
- We were nearing the end of the treasury auctions.
- I believe treasuries were suffering from an asset allocation out of treasuries into more risky assets. Often asset allocations are done by month end and we were nearing month end.
- Treasuries are down 25% from the beginning of the year and were deeply oversold.
I will likely cash out of my treasury trade on Monday as it was just a trade.