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.
Sovereign Speculator
Thoughts on the markets and economics from a lone, wandering participant.
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?
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.
IEF would be the ETF proxy for 7-10 year Treasuries.
….using mid-duration Treasuries, I’d be inclined to go heavier on them than JNK.
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.
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What happens to that trade if Hank Paulson and Tim Geithner are clapped in irons and the bailouts are rescinded as a criminal conspiracy to loot the Treasury?
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.
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