T-Bond Bubble Yet? 10 Year Yields 2.37%

[skurla2000]

http://www.bloomberg.com/apps/news?p...cJ0&refer=home

Do T-Bonds qualify as a bubble yet?

1. Initial fundamentals
2. Parabolic price increases
3. Investment yields approaching zero
4. Self-reinforcing belief psychology

"Treasury bonds are issued by the U.S. government... they're the safest investment there is..."

Check out this calculator to find out how much a $100 10-Year 2.37% T-bill note would be worth at a market yield of 10%...

http://www.smartmoney.com/investing/...lculator-7917/

It's $56... A 44% loss.

Will Boomers who got out of the big bad market into "safe" long-term investments be surprised when the safest investment on earth isn't any safer than the last 5 bubbles?

[Sapiens]

Re: T-Bond Bubble Yet? 10 Year Yields 2.37%

Do T-Bonds qualify as a bubble yet?

Not yet, wait until people start flocking to PMs instead of longer maturities, then you will know.

[bpr]

Re: T-Bond Bubble Yet? 10 Year Yields 2.37%

Not yet, wait until people start flocking to PMs instead of longer maturities, then you will know.

Wouldn't this be the bursting of the bubble?

BTW: 10-year yield is down to 2.11%

[Sapiens]

Re: T-Bond Bubble Yet? 10 Year Yields 2.37%

Wouldn't this be the bursting of the bubble?

BTW: 10-year yield is down to 2.11%

There is a lag between what the SmartMoney does and before the Herd follows of about a year...

[bpr]

Re: T-Bond Bubble Yet? 10 Year Yields 2.37%

December 17th, 2008
Fed unleashes greatest bubble of all
By: John Kemp
– John Kemp is a Reuters columnist. The views expressed are his own –

Like the sorcerer’s apprentice, Federal Reserve Chairman Ben Bernanke and his predecessor Alan Greenspan have unleashed a series of ever-larger asset bubbles they cannot control.

Now the Fed’s decision to cut interest rates to between zero and 0.25 percent, coupled with a promise to keep them there for an extended period, and the threat to conduct even more unconventional operations in the longer-dated Treasury market risks the biggest bubble of all, this time in U.S. government debt.

...

ONE LAST SUPER-BUBBLE

The strategy has already succeeded in halving yields from over 4 percent in mid October to just 2.25 percent now.

By convincing investors interest rates will remain ultra low for a long period, the Fed has made them willing to lend to the U.S. government for up to ten years for what is a paltry return.

There are two risks. First, the massive rise in bond prices and compression of yields has come in the secondary market. The U.S. Treasury has not yet succeeded in placing much of its massively expanded debt and new requirements for next year at such low levels. But given the panic-driven demand for default-free assets, officials should not have too much difficulty.

The bigger one is that the Fed is misleading investors into the biggest bubble of all time. Bernanke is making what learned economists call a “time-inconsistent” promise to hold interest rates at ultra low levels for an extended period.

The problem is that if the unconventional monetary policy works, and the economy picks up, the Fed will come under pressure to “normalize” rates and reduce excess liquidity to prevent a rise in inflation. The resulting rate rises will inflict massive losses on anyone who bought bonds at today 2.25 percent rate.

Bizarrely, Bernanke and Co are in fact inviting investors to bet the policy will fail, the economy will remain mired in slump for a long period, deflation will occur and interest rates will remain on the floor, as Japan’s have done since the 1990s.

Source: http://blogs.reuters.com/great-debat...bubble-of-all/

[ST]

Re: T-Bond Bubble Yet? 10 Year Yields 2.37%

Just wondering if anyone knows of any vehicles that trade on Canadian markets for shorting long US treasuries for when the time comes. I'm aware of TBT in the US.

[Joy]

Re: T-Bond Bubble Yet? 10 Year Yields 2.37%

A word of warning to those considering shorting TBonds. The carrying cost on a short position is enormous. Futures prices for TY, FV and TU all have massively negative implied term RPs. So you need to be timely on your short otherwise the carry will get you.

[FRED]

Re: T-Bond Bubble Yet? 10 Year Yields 2.37%

A word of warning to those considering shorting TBonds. The carrying cost on a short position is enormous. Futures prices for TY, FV and TU all have massively negative implied term RPs. So you need to be timely on your short otherwise the carry will get you.

We have seen many a trader go down shorting US Treasuries over the years, betting that Treasuries will fall because they are "supposed to" go down because they are "overpriced." Same deal with gold. Here we are in a "deflation" yet gold prices keep rising. We were told many times in 2007 that by the end of 2008 gold prices will destined to be be at $450 or below.

Beware the ideological who base trades on political beliefs -- "what should be" versus "what is."

The pedantic who repeat the same theories over and over without improvement or modification, never acknowledging errors and so never learning from them.

The wedded by reputation or source of income to a static position: buy stocks, buy gold, buy bonds, buy houses, etc. "Now" is not always the best time to buy gold, buy bonds, buy houses, etc.

Focus on the data and look for an investment framework that can adapt to a complex and ever-changing global political economy.

Accept change as the only constant.

[raja]

Re: T-Bond Bubble Yet? 10 Year Yields 2.37%

We have seen many a trader go down shorting US Treasuries over the years, betting that Treasuries will fall because they are "supposed to" go down because they are "overpriced." Same deal with gold. Here we are in a "deflation" yet gold prices keep rising. We were told many times in 2007 that by the end of 2008 gold prices will destined to be be at $450 or below.

Beware the ideological who base trades on political beliefs -- "what should be" versus "what is."

The pedantic who repeat the same theories over and over without improvement or modification, never acknowledging errors and so never learning from them.

The wedded by reputation or source of income to a static position: buy stocks, buy gold, buy bonds, buy houses, etc. "Now" is not always the best time to buy gold, buy bonds, buy houses, etc.

Focus on the data and look for an investment framework that can adapt to a complex and ever-changing global political economy.

Accept change as the only constant.

So, you're saying it's too early for TBT ?

[bpr]

Re: T-Bond Bubble Yet? 10 Year Yields 2.37%

So, you're saying it's too early for TBT ?

I'm waiting 'til yields on 30-year are under two, and only then if Bernanke shows up before Congress with gin blossoms and bloodshot eyes. He's already stated that they are going to buy across the curve, so people are buying them with good reason.

Shorting a bubble before it bursts is a blueprint for bankruptcy.

[Joy]

Re: T-Bond Bubble Yet? 10 Year Yields 2.37%

I do think at these yields TBonds are a short. But its not an easy short. I have no doubt that yields would be higher in 2-3 years. But is it higher enough to compensate you for the negative carrry.

[GRG55]

Re: T-Bond Bubble Yet? 10 Year Yields 2.37%

Just wondering if anyone knows of any vehicles that trade on Canadian markets for shorting long US treasuries for when the time comes. I'm aware of TBT in the US.

I would be wary of trying to do this with a Canadian vehicle. The size of the Canadian market means that, by definition, the liquidity of any instrument will be less, much less, than a comparable US traded instrument. At times like this liquidity should be of value to most investors.

[GRG55]

Re: T-Bond Bubble Yet? 10 Year Yields 2.37%

I'm waiting 'til yields on 30-year are under two, and only then if Bernanke shows up before Congress with gin blossoms and bloodshot eyes. He's already stated that they are going to buy across the curve, so people are buying them with good reason.

Shorting a bubble before it bursts is a blueprint for bankruptcy.

I am not much of a trader, and even less of a chartist. But one thing I have noted over the years is that almost every parabolic price rise attempts a retest of the high after the first break. Wouldn't it be easier to short the second break?

[Supercilious]

Re: T-Bond Bubble Yet? 10 Year Yields 2.37%

IMHO there is a T-bubble, but making money by shorting TLT may not be worth it.

[cmraynew]

Re: T-Bond Bubble Yet? 10 Year Yields 2.37%

Long-dated, deep ITM puts on the TLT currently cost about 7.4% annualized to hold. That doesn't strike me as that costly...

[Jan 11 165 strike puts cost $63.90 on the ask; TLT closed at 119.62. 119.62-101.10=18.52 true cost for 25 month option. Or about .74 per share per month. On a 119.62 share, that equates to about 7.4% per year.]