Guest Post: Careful With 30Y Treasuries

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Mon, 08/16/2010 - 19:43 | 524993 bugs_
bugs_'s picture

Bo knows.

Mon, 08/16/2010 - 20:02 | 525025 NoLongerABagHolder
Mon, 08/16/2010 - 22:11 | 525245 DarkMath
DarkMath's picture

"Printing alone will not cause massive inflation. The spending of printed dollars will."

True, spending those dollars the Fed conjured into existence would cause inflation. But you're missing something: the other part of the Supply/Demand equation. Your talking about the Supply of Dollars, what about the Demand for dollars? Inflation could be caused by an increasing Supply OR a decreasing Demand right? So if our creditors fear a default in a deflationary environment then they will dump dollars.
So your argument is only half right. What you miss is calculating how our creditors will react, will they always have faith? Since that is a psychological question we've left the realm of Economics. Nonetheless the answer still has a direct impact on where things are going. Given that no one can answer that question I'm going to punt on the Equity AND Debt markets and go into Commodities like Oil, Food and Precious Metals. They don't lie and they're all going through the roof in the next 10 years.

Mon, 08/16/2010 - 20:51 | 525105 johngaltfla
johngaltfla's picture

Agreed. This is a trap waiting to snap your nipples off. It's gonna be painful for those suckered into it thinking the Fed will sustain any long term purchases past the election. Add salt and vinegar to the wounds and the curve blows back out and steepens rapidly.

Mon, 08/16/2010 - 22:02 | 525230 jeff montanye
jeff montanye's picture

so if not past the election we are talking a good two months, right?  the last time the long bond traded at the current level coming down, it was at about 2.55% a month later, in an environment of equity weakness.  that's a trade worth making.  of course when one thinks one has the key to the market, it changes the lock. 

Mon, 08/16/2010 - 23:04 | 525338 Not For Reuse
Not For Reuse's picture

only way the 10/30 steepens is if the 10 goes apeshit. It's fucking math plain & simple, the fed can try to pretend they have fuckall to do with it but it's purely posturing.

Mon, 08/16/2010 - 19:49 | 524998 swanpoint
swanpoint's picture


Mon, 08/16/2010 - 19:53 | 525006 Dismal Scientist
Dismal Scientist's picture

Bond market says 'We'll be herded, but there's an arb in the meantime'. GET ME OUT

Mon, 08/16/2010 - 20:03 | 525028 trav7777
trav7777's picture

I'll bet money that they flatten the 30 too.

With mortgages indexed to longer-duration bonds, there is really no choice here to lower "real world" interest rates.

The whole spread function mandates it.  It's the last thing they can really do to try to spur lending.  Collapse all rates in all durations and hope that people are motivated by 2% mortgages and shit. 

Why?  Because DEMAND by US for credit of any duration has waned markedly.  So they will try to sweeten the deal.

Mon, 08/16/2010 - 20:29 | 525070 Eternal Student
Eternal Student's picture

That's a superb point. Some Economists in the RE biz (with PhD's even) were predicting that interest rates would go up in the Fall. They're looking even more silly now.

But if Real Estate is declining by 10% YoY, that 2% mortgage becomes very expensive. Especially if you're putting skin into the game.

In order to pull this off, they'd somehow have to convince people that last Winter/Spring really was the bottom of the Housing market, and not just another mini-bubble blown by the Fed. That's going to be harder to do in the next couple of months, IMO.

Mon, 08/16/2010 - 22:06 | 525235 jeff montanye
jeff montanye's picture

you and trav make excellent points:  why the fed may do it and why it likely won't work.

Mon, 08/16/2010 - 22:34 | 525281 -1Delta
-1Delta's picture

Agree, other than the duration on the 10yr is greater than the 30yr (mathematically speaking).

But it will flatten... the reality is that low rates do not fix a fukin haircut on an expensive house. But trade that direction

Mon, 08/16/2010 - 20:03 | 525029 Magua
Magua's picture

Understand the worry, but making 20% in a year to year and a half is worth the risk. The fallout comes later, 2012 ish

Mon, 08/16/2010 - 22:13 | 525247 DarkMath
DarkMath's picture

Extend and Pretend all you want. I'm heading for the lifeboats.

Tue, 08/17/2010 - 05:00 | 525516 Thorlyx
Thorlyx's picture

Lifeboats, bitchez !

Mon, 08/16/2010 - 20:04 | 525033 mynhair
mynhair's picture

Didn't the Fed amend their statement to include 30-yr purchases?

I always trust the Fed.

Mon, 08/16/2010 - 20:04 | 525034 Buttcathead
Buttcathead's picture

I aint buying nothing.  It's all too rigged.

Mon, 08/16/2010 - 20:12 | 525047 ZeroPower
ZeroPower's picture

Said in the other thread on USTs and will say it here, using long-dated swaptions will save your ass from the guys upstairs (or downstairs if its the turds in risk mgmt!)

Mon, 08/16/2010 - 20:13 | 525048 Oswald Spengler
Oswald Spengler's picture

TBT 3X daily volume today.

Mon, 08/16/2010 - 20:20 | 525060 Monkey Craig
Monkey Craig's picture

Good call....the retail investor is only interested in bearish bets.

Hamid Gul was on Alex Jones today. Sign of the times.

Mon, 08/16/2010 - 20:46 | 525097 Justaman
Justaman's picture

Is this all for real?  Is this really happening?   

How did we get to this point of no return and who is okaying these cataclysmic decisions? 

Are the only buyers of Ts really the UK, Fed, and banks?  Are we all expected to ride this bitch down? 

I know these are all rhetorical questions but I really have to write them down once in a while, you know, as therapy. 




Mon, 08/16/2010 - 22:08 | 525233 hamurobby
hamurobby's picture

How did we get to this point of no return?


Well lets see, someone thought it a great idea to repeal the head tax...or was it the first federal bank... well anyways, we are finally here! You know, that point we all talked about twenty years ago where we were going to have to pay for it all, wow time flies.

Mon, 08/16/2010 - 20:54 | 525115 gringo28
gringo28's picture

No, Cu cracker

Mon, 08/16/2010 - 20:55 | 525116 gringo28
gringo28's picture

No, Cu cracker

Mon, 08/16/2010 - 22:32 | 525278 BernankZZZ- Again
BernankZZZ- Again's picture

Well I have certainly done my $ on the TBT idea:( ,How can you double US dollars, run up huge deficit's, commodities at high levels and not have some sought of inflation. I am tired of trying to be smart now I may go and pour myself a scotch and watch from the sidelines.

Mon, 08/16/2010 - 23:33 | 525377 whatsinaname
whatsinaname's picture

How about 2012 puts on TLT (OTM) instead of outright TBT ? Let the leverage work for you and not against. TBT could be ground to death by central bank / big bank shenanighans..

Tue, 09/28/2010 - 08:43 | 609614 Herry12
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