6 Responses to “Time to sell TBT and buy TLT.”

1. CBS
   May 27th, 2009 at 11:33 pm

   

   They can’t afford to have rates keep rising this much.
   The fed could stampede investors out of stocks and back into treasuries.
   That’s probably what I would do in their hopeless situation.
   Getting people out of stocks would be as simple as being honest about the economy, or no longer using the credit of the US to prop up insolvent companies.
   That would be doubly effective because the bailouts are one of the things that make treasuries so unattractive.

2. Mike
   May 27th, 2009 at 11:39 pm

   

   They can’t do anything but jawbone. Anything they try will just have a very short-term effect on market prices. Just look at what has happened since they announced they were going to start buying Treasuries.

   30-year Treasuries would be junk as buy and hold instruments even if there had been no bailouts at all. The US is broke primarily because of entitlements and secondarily because we have 130 military bases abroad and two bloody occupations in Asia.

3. Max
   May 28th, 2009 at 12:10 am

   

   I don’t understand why treasuries are plunging now. Why didn’t this happen weeks ago? Seems like a weird delayed response to the stock rally.

4. Mike
   May 28th, 2009 at 12:14 am

   

   Treasuries fell hard in April as stocks really took off, but each market does its own thing. Sometimes there are tight linkages, sometimes not.

5. Aki_Izayoi
   May 28th, 2009 at 1:08 am

   

   I’ll ask this because of curiosity:

   Are Japanese government bonds and German government bonds horribly overvalued too? I do not think Treasuries are “horribly” overvalued; I would think a ~ 3.7% nominal yield is a very high real interest rate in this environment where the return on other assets are very low.

   I have the general sentiment that Bernanke just ran out cards to play. It is probably that he would print again (but unlike most market participants, I do not think it is a 100% chance that he will raise the pot in this game of chicken), but I don’t know if he’ll test the bond market again. Perhaps, he realizes printing money has dangerous effects in a globalized economy especially if you rely on foreign funding for a large fraction of deficit financing. Bernanke would have more freedom to print if the US was more autarkic. At least Bernanke’s created the perception that he would print more. Perhaps that perception would backfire as it fuels reflation trades in commodities that increase prices for consumers who are already suffering from wage deflation and unemployment.

   This is a good entry:
   http://zerohedge.blogspot.com/2009/05/playing-mortgage-chicken.html

   What about gold? Although I am a deflationist, I do agree with Adam of Gold versus Paper and Mish that it would do well. I do not buy the hyperinflationist’s argument that gold will hit $5,000, but it will still do well. I regard gold as an illiquid form of money that has a built in put option that increases in value due to when currencies are perceived to be in crisis. Also, since gold outlasts everything (except proton decay), I suppose it would benefit in an environment where people have negative long-term intratemporal discount rates (as this happens in older populations). It would do well when the short term interest rate is at zero, and when the return on equities will be very low.

6. Mike
   May 28th, 2009 at 10:11 am

   

   Bernanke does whatever the big banks want — if they need money, he’ll print it up. He’s a completely compromised individual.

   Treasuries are unlikely to return a real yield of 4.6% over the next 30 years, because the US government’s finances are such a wreck that very high inflation is likely by then. Given the current market environment and greater fool theory, they are a buy, which is why I’m long.

   I also own gold for the long run and intend to keep buying it, though I am not averse to shorting it in the short run, just as I am not averse to trading T-bonds.