Ignoring Reality

Last month I bought TLT for a trade when we probed this area and I am considering buying for a trade once again if we go under 90. However, I want to see rates at the short end of the curve move up first. After today's data I would have expected to see a bear flattener, meaning short rates going up more than long rates. But the holders of short term paper are remarkably complacent. The possibility of higher rates anytime soon are not being priced in by the short end of the curve. It could be quite a shock once reality sets in.

8 comments:

PJ said...

I guess I'm in the group that can't imagine the Fed allowing short-term rates to rise.

Tsachy Mishal said...

We just saw a Jobs print of 300,000. Commodity prices are soaring and Chinese imports are getting more expensive. A two year yield of .72% is pricing in a very small chance of any tightening. I think the chances are larger than that.

Tsachy Mishal said...

One possible reason for this might be that everybody is hiding at the short end because they dont want duration.

Tsachy Mishal said...

But they should be buying floating rate obligations.

Anonymous said...

the fed will not raise short term rates for many years

Anonymous said...

volume and volatility are back. The 100+ pt swing days are back.

Looking to go long vxx

dawg you should have held your short on zlc a little longer. You might want to go long zlc for a trade if it goes much lower. It could bounce to mid $4's

Anonymous said...

Fed is always behind the curve. And when short term rates go higher, they will raise snail's pace like they did in 05. By then it will be too late and bubbles will be monstrous. we seen this before.

revelo said...

I'm 100% in intermediate-term corporates and have been since April. Not pleasant these last 2 months, but I'm sticking to my strategy. Rising costs due to a lower dollar and higher commodities acts as a tax, and higher taxes do not lead to an inflationary spiral.

Population is always growing and businesses have been pushing productivity hard for a long time, so there is a lot of pent-up hiring. Proves nothing. A few unemployed people will get jobs, but things remain grim for the middle-class, not least because of the higher import costs noted above. Housing is starting to slump again. Whatever recovery there is, is a fragile recovery. The Fed does not want to burst it.

I should have gone cash back in late October, because rates then were excessively low. I foolishly decided to hold on another 6 months in hopes of getting the long-term capital gains rate. Anyway, rates now seems excessively high. If I had gone cash in October, I'd be buying intermediate bonds again now. A steep curve makes hiding out in cash a questionable strategy. I'm certainly not selling my bonds now.