Treasuries raced higher Thursday, driving government debt yields down to historic lows, as recession fears pummeled stock markets and powered a frantic rush to the safety of bonds and cash.
The gains in bonds, which benefit from economic hardship, were almost inversely proportional to the plunge in stocks. The benchmark S&P 500 index slid to its lowest since 1997, erasing more than a decade of stock market gains.
The fall of longer-dated note and bond yields to five-decade lows marked a new extreme of risk aversion among investors, many of whom have not experienced such tumultuous financial market turmoil in their lifetimes. Many analysts are now starting to worry that there is at least an outside chance of a depression, not just a recession.
That is a serious flight to quality and deep concern about the stock market.
7 comments:
What is the best way to short these Treasuries at record low yields?
you sell the 10 or 30 year treasury future using a future broker liek interactivebrokers.com or one of the others. i know this intimitely as I lost about 50k doing so on Thursday. Be careful! It looks like Japan out there, which consistently set "record low yields" all the way down to 1% on the 10 year equivalent.
I am nowhere on knowing how futures works. I have to work on that. How about an ETF that works the same? Thanks for the info Jarret.
Bob,
You could also short or buy puts on the TLT (an etf on the the lehman 20yr tresury index).
I too got rocked on thursday getting short the 30-year. 5 handles past 124 are you kidding? Luckily I was hedged but, still, it hurts. Stay long gamma in this environment, man.
On the day before options expiration, frankly this looks like a short squeeze. Big pension funds got caught with a big short bond hedge? Any thoughts out there?
Nick in Los Angeles
nick77@gmail.com
p.s. It's looking like I'm going to have to get a job. Anyone hiring on the west coast? Seriously.
Use the etf TBT to short Treasuries.
Good Luck.
trade on http://www.betonmarkets.com
You could also buy puts on the ZB 30 year bond futures. That way your risk is limited to the size of investment (ie if you buy/short the futures contract, your risk is unlimited as poster above pointed out, with option you may loose the price of the option but cannot loose more than that). I am buying March puts myself, which expire last week in Feb I believe.
CME sent out a message last week that tells brokers there will now be penalties for "fail to deliver" - I belive about 7 trillion were in that status since Lehman failed, and there was no real penalty for not delivering on contracts. Additionally brokerages can sell naked short to their clients without really telling them and they can get caught if a call for delivery happens.
Additionally short option traders could not roll over their options for a reasonable amount of money, almost a full handle on bid ask spread, so they are now forced to pick up some futures to hedge risk.
Also, Treasury market moving into buy bad bond assets (500 billion or so) causes brokerages selling to clients to buy long treasuries as a hedge.
Looks like a short squeeze is on after market kicked up by treasury hedging actions and FTD (Fail to Deliver) penalty notices, but perhaps something else is afoot.
Worth about a 20k bet to me, if it is good I should flip 150% on half for recovery of principle and profit and ride the rest for a better multiple.
Part of what fuels my optimism is model I am following called for world low on Oct 27 and Nov 21 so doubled my S&P futures in 2 days on those buys and that model now calls for a new buy signal for commodities and stocks through spring. The offset to this should be a sell off in the dollar and treasuries.
Just an opinion.
Don't have a posting identity, as I don't post in open forums often, so hitting anonymous button.
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