Everyone loves junk bonds and hates Treasury bonds. That’s an opportunity:
Source: Yahoo Finance
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Hat tip to EWI’s Financial Forecast (just released) for reminding me to check on this chart.
- Tags: bond spreads, corporate bonds, JNK, Junk bonds, LQD, TLT, treasury bonds
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7 Responses to “Long TLT, short JNK”
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AudioTactics
January 8th, 2010 at 12:15 pm
Does it make sense to put this trade on using TLT and JNK from a duration perspective?
Is that how you entered this trade and did you do it in a 1 for 1 ratio?
Mike
January 8th, 2010 at 12:26 pm
Sure, from a pure spread perspective, it would make more sense to use 7-10 year T-notes.
I’m warming to the 30-year though.
Mike
January 8th, 2010 at 12:31 pm
IEF would be the ETF proxy for 7-10 year Treasuries.
Mike
January 8th, 2010 at 12:38 pm
….using mid-duration Treasuries, I’d be inclined to go heavier on them than JNK.
CP
January 9th, 2010 at 1:12 am
Your trade comes with a headwind though, because all debt is priced off of Treasuries, and if Treasuries rally then that is bullish for JNK as well.
I agree with your premise, though, and suggest shorting equities and buying Treasuries.
CP
January 9th, 2010 at 1:20 am
Mike,
Some WS firms are *still* touting a long-risk, short-sovereigns trade, i.e. buying securities of TBTF firms and selling government debt.
Really? That was a great trade in Mar 09, but now it is the height of foolishness.
What happens to that trade if Hank Paulson and Tim Geithner are clapped in irons and the bailouts are rescinded as a criminal conspiracy to loot the Treasury?
Mike
January 9th, 2010 at 5:34 am
CP
The idea is the spread - it doesn’t matter if both go up, if T-bonds/notes go up more.
But check your premise - corporates crashed in 08 as Treasuries rallied.