Anyone else shorting Treasuries?

Interesting post on mean street about the inflation vs. deflation debate and the recent flight to quality from equities and currencies into US govt bonds. From what I have seen, I think inflation is unavoidable within a 1-2 year horizon, though i understand why so many investors are piling into treasuries. on the other hand, i dont see a lot of attractiveness in the US govt right now.

http://blogs.wsj.com/deals/2010/05/25/mean-street…

Thoughts?

 

I think this ends up relevant today as well. Reviving an old thread, should you short treasuries which values will drop when the fed eventually raises rates?

"Everyone has a plan until they get punched in the face."
 

There is nothing bearish about the 10yr chart at this present time, been milking this range for all it's worth though. The unfilled gap below will tap the breaks on any big selling inside this range but after it fills and breaks this range then I'll change my tune, until then... not so much. Look at the ECB, negative rates have signaled peak credit. There will be a time to get on the short of the year, not convinced its anytime soon though.

 
Martinghoul:

That, my friend, is the bazillion dollar question... Personally, I believe treasuries are expensive here, but you need to find clever ways of being short. Then there's the question of what part of the curve you wanna be short. Finally, it's a very very crowded trade.

What do you mean by what part of the curve?
"Everyone has a plan until they get punched in the face."
 

So I get that shorts are probably crowded, but how exactly does that intuition aid in your trading? Is it just that if everyone and their moms are short, price action can quickly move against consensus: shorts are squeezed and shorts lose so be careful - or something deeper? If that price action is realized, what then prevents longs from subsequently being considered crowded if not consensus (does crowded = consensus). As an approximation, if well-known positioning reports switch week on week, how do you distinguish which side is more crowded? Obviously bull flattening has been the major price action in the tsys markets. What else is there to say here besides that some shorts are stubborn about rising rates?

As for the poster above who mentioned carry and Fed, agree that carry costs are very high. Part of this seems due to the short base, but I suspect it's noticeably worse this year due to increased balance sheet constraints and their impact on repo costs / fails.

Regarding the Fed, they've been pretty predictable this year? Of course easier said in hindsight, but March FOMC + dot chart risks were fairly predictable, and the response to it from Fed was also predictable. Yellen's speeches did not contain many surprises. The 6 month comment caught some off guard but not news if you look back at previous rates backup and related Fedspeak. Her comment about inflation print being noisy seemed to have tripped some up, but hey that's a positive, not normative statement. The labor market slack indicators important for sustained inflation (that Yellen pays close attention to) haven't really moved all that much. What else?

 
Best Response

The crowded nature of the trade is sort of a pure trading consideration that doesn't really mean anything for the fundamental reasoning behind the trade. It just tells me that a) it might be worthwhile to look carefully at alternative expressions; and b) that I should be very patient about both the entry and the exit (which, obviously, has meaningful implications for negative carry/rolldown trades). As to how I determine whether a trade is crowded, I don't really look at surveys that much. They are, indeed, only useful at positioning extremes, at which point you don't normally need them. The best indication of positioning comes from discussions with one's peers, IMHO.

I am really not sure why carry is any worse now, unless, of course, you always choose to be short the currents. If you're worried about repos, you can be short through Eurodollars and/or swaps, especially given where swapspreads are.

Finally, regarding the Fed, I agree that there doesn't seem to be anything all that exciting going on for the moment. It's been reasonably predictable, although there are mini-bombshells here and there (e.g. the RRP rate discussion the other day). The big question is whether they have what I call their "Bank of England" moment some time later this year.

 

What @"Martinghoul" said. Had the pleasure of speaking with Antti a while back and those papers are the shit for getting an understanding.

CNBC sucks "This financial crisis is worse than a divorce. I've lost all my money, but the wife is still here." - Client after getting blown up
 

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