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The 'Smart' Money Has Never Been This Long The Long-Bond
Back at the beginning of 2014 - when commercial traders were net long nearly 40,000 options and futures contracts on the US long bond - it marked the peak in yields and preceded a 13 month rally in bonds that took 30-year treasury rates from 4% to 2.25%.
Now, as Gavekal Capital's Bryce Coward notes, the commercial traders, aka "smart money," were net long about 61,000 contracts, or 50% more contracts than the peak in 2014.
If recent history is any guide then a 1 handle on the 30-year treasury bond could be a reality!
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Maybe there is just a lot more "funny money" sloshing around now.
Speak of sloshing round, are you ever wonder what is happen for Olympiad Figure Skater Tonya Harding...?
http://www.tonyaharding.com/
Please Tweet for Boris!
http://twitter.com/BorisAlatovkrap
why not..Nothing better to talk about.
I know for a while Tanya was a commentator on some TV Internet video show of people doing dumb things.
A while ago she was at the Bonneville salt flats. Her "team" was racing a jalopy.
Junk bonds are more crazy than the long end.
That our 10 year could be trading at a 2% yield while most of Europe (and all of Japan) trades at sub-1 or negative is, quite frankly, mind boggling.
I would be buying USTs with both hands and both feet. Yields have nowhere to go but down.
Down-vote if you must, but you're wrong.
You know my position already. Too bad we're on the same side of the trade, I'd like another free lunch.
can't follow you, to be frank. the FED paused, the ECB is still... gaining speed, and the BoJ is trying to break the sound barrier. or did I miss something? I often do, in the details, so it might be a genuinely stupid question
Think about it from the carry-trade position. Currency drops, more yield is demanded to compensate. The USD has been the strong man the last few years (Euro clearly in decline along with the Yen). So to an outside investor you would think they would demand higher yields to compensate for the falling currencies, but they aren't. Rock-bottom yields dominate almost everywhere.
Now, let's say you were to take some of your socialist money, convert to dollars and buy USTs. Not only would you be getting higher yield (~2%) than you would in German Bunds you'd also be gaining from the appreciation of the dollar relative to the Euro. (in fact, this would have been a fucking FANTASTIC trade for you personally, while it's only been a "pretty damned good" trade for me, since I work natively in dollars).
Why does this situation not correct itself? You would think it would with US yields falling and European (or Japanese) yields rising. But it doesn't. I'll give you three guesses why and your first two don't count.
hint: which country has an enormous interest rate swap derivatives and futures market and turns a blind eye to HFT and algo action in those markets?
the one with the highest yield, ours.
intervention
The FED paused? Well that's what they claim anyway, I bet they're throwing in $150 billion a month by now.
You don't seem to realize how much new debt the US is emitting. Europe is not emitting near as much volume. So your comparison is just wrong.
Mmmmmm.... I was going to argue with you, but I think that's at least a defensable position. Except that yields have been on a flattish trajectory even after QE3 was halted. Seems like there's no shortage of buyers out there even when the Fed steps back.
the fed has transferred 1/2B onto bank balance sheets through reverse repo since september, check the charts. whenever the fed steps back it takes two steps forward
OK so when is the Fed stepping back? No way can anyone convince me that after $85 billion monthly handholding the Fed just handed it off to retail and it's all just peaches and cake now.
and the foreign buyers will overwhelm that supply, but what happens to the dollar, there is no frre lunch in these things, (LTCM) i agree with you buy the way because yields are just going to fall and holding 2% today might look pretty smart a year from now, and if it doesnt buy the FRN. final outcome were all picking up dimes in front of bulldozers which is the least risky alternative
what's even more mind boggling is watching them get absolutely slaughtered on the foreign exchange rate at the same time.
Exactly. That's exactly where my incredulity comes from on this subject.
From a fundamentals standpoint you are spot on. Unfortunately fundamentals are extinct courtesy of ZIRP.
Been long treasuries for years now, and I'll stay long treasuries until the ten year goes under 1%
wow the insight... why don't you lever that up. We can call you the Andy Hall of bonds.
Nope, I'm just a big dumb guy from Indiana, but the trade has worked well for me so far.
i put all of my captive 401(k) funds in bonds in 2009. never looked back. never expect to get it back either, unless i quit my job.
I caught a Reuters headline this morning that said 'Dont hate the Fed because bond yields are great!' ... yea whatever.
If anywhere but a bank account is well enough it should be a flashing liht about the banking sector.
Another one that is...
A line comes to mind from a Futurama episode Aristocratbot- 'I'm informed a 'bank' is a place where people put money that is not properly invested in bonds.'
I wonder how much of that is long vs short the 5 year (or some other part of the curve.) I know a lot of guys have flatteners on, which puts a bid in the long end, but is net neutral.
How do we know these "commercial traders" are not the fed?
I'm sure they are.
the primary dealers have been staying out of the market, and yes the fed is concerned when that hedge fund operator bought a great deal of chinas sale in the aftermarket through belgium. (are they the beard of the beard) the reverse repo (about the same amount as that buy) extends FED control of interest rates over the ENTIRE economy. so i think theyre nervious, theyve not going to cede control of rates to the free market and the smart money is gaming them.
ZERO INTEREST BLACKHOLE....ZIB will suck in everything....I am wait for my $1 pound of Gold, $1 Ton of Steel, $1 tanker of oil, etc
The fact that 10 year yeilds worldwide a basically sub 2% tells you all you need to know about how rigged the whole ponzi has become. With this type of logic Illinois and Puerto Rican debt should be rated AAA and and their 10 year bonds should be yielding .5%, because we all know that sovereign and state debt can never default, restructure maybe, it sounds so much better that way, doesn't it?
I'm sure Italy and Spain and Portugal and France and Japan are good as gold, and that negative interest rates are surely the answer to what ails their economies. Now that the debt ceiling has been raised and the FED will raise rates I have no doubt in my mind that the US will never default on "our" debt.
With the economy rebounding and GDP in the mid 1's (if one takes out the real rate of inflation) its all caviar and champagne wishes from here. 5% 3 month rates are just around the bend. I see no problem in paying for 80 million boomers, a few more decades of conflicts around the world, the soon to be bailout of student loans, and 1 trillion dollar interest payment on "our" debt.
Come on FED raise those rates, it won't stop this juggernaut of an economy.
i don't like being called "smart money". i prefer the term "astute".
You've beaten down my gold, which means you're exceptionally strong, so you could've put the poison in your own goblet, trusting on your strength to save you, so I can clearly not choose the wine in front of you. But, you've also bested the last stock market bubble, which means you must have studied, and in studying you must have learned that man is mortal, so you would have put the poison as far from yourself as possible, so I can clearly not choose the wine in front of me... [/Vizzini]
really? with leveraged funds and dealers net short some 300,000 contracts, with the NY FED probably aiding them by being on the other side (not reportables) on a third of that, and with the "authorities" (that's a funny one) turning a blind eye to the use of HFT and algos in interest rate futures, it really is hard for rates to go where they should. it's a dudley-do game.
i expect the FED to declare that they have finally hit their 2% inflation target sometime after the first of the year. with that they will raise rates 1/4 point, which should be enough to give the market some real lift. from that point forward the FED will remain BEHIND THE CURVE, raising rates once for every two time that inflation goes up. they control rates through that huge reverse repo so there is no problem with rates getting away from them. i think the market will take it positively since the FED has pretty much boxed everyone in, and MS Yellen the monetary dominatrix carries the day. not sure how the debt ceiling deal was backroom brokered but it figures in the decision. either way they can reverse repo off their balance sheet for a long time but without the template of automatic monetization that could fall apart. oh and NIRP will exist to the degree that you bought paper at rates lower than the current rate, but again not by much. a lot of bond holders will get NIRPED and underwater bond holders replace underwater mortgage holders in the next crisis, but first dow20K
Other than the convenience of doing things the way they have been since 1971, combined with tacit threat of U.S. military 'regime change', what is it that keeps vaunted $Treasuries so 'strong' - the BLICS...?
http://www.msn.com/en-us/money/markets/major-oil-companies-unveil-the-da...
I'm waiting for the entire stawk market to catch up to the correction in oil, PMs, etc. It will be dramatic, maybe a 60% drop. Same with housing.
The chart is a total lie. Based on last week data Commercial long position was 293686 and short position was 285175. so the Net long positionis only 8511 which is small. Then you look at Non-commercial position which is long 64034 and short was 67187 for a net short of -3153. So the total Net position is long 5358, not the nearly 60,000 long position as reported here.
I think we need a phrase change. Smart money? Hardley. More like scared sh*tless money.
I think other things may be at work, as well. First, even simple investors like a guy with a 401k understand interest rates. They believe government bonds (any decent government) are a safe place to be. Everyone of working age still has 2008 fresh in their minds if not other market crashes. In a blink they know you can lose your rear and they have a sense that that is how it goes, now. Everything goes up and then one day you wake up to thousand point daily drops. This is followed by your 401k crashing, followed by your layoff, followed by your house value crashing just when you need to sell it.
Bonds and cash seem relatively safe in a very nasty investing world. Look at the other articles here on ZH that show how most people have their investments all wrong and are in majority cash and bonds (including me, BTW). It make sense when you see it as I do.