Thought: Can the Treasury bond bear bus get any more crowded?
One should never be contrarian for the sake of contrarianism but does it not seem that almost everyone is a Treasury bond bear all of a sudden?
The graphic below depicts some headlines and articles from a diverse set of bond bears.
I have picked a set that ranges from mainstream institutional investors (Bill Gross) to popular investors (Marc Faber) to goldbugs (FinancialSense articles) to amateur investors (SeekingAlpha articles.) When was the last time such a wide cross-spectrum was bearish on the same thing, let alone a major asset like US Treasury bonds?
I personally would not buy US Treasury bonds but, at the same time, I would not sell them (short.) I might be wrong, as I often am, but my current opinion is that there are too many bond bears. I am particularly cautious because, although 2% yield for 10 year seems ridiculous, the economy may remain weak for a long time. If you are shorting bonds, you are implicitly making a bullish bet on the economy (the so-called re-flation trade) so you better be confident of that.
The graphic below depicts some headlines and articles from a diverse set of bond bears.
I have picked a set that ranges from mainstream institutional investors (Bill Gross) to popular investors (Marc Faber) to goldbugs (FinancialSense articles) to amateur investors (SeekingAlpha articles.) When was the last time such a wide cross-spectrum was bearish on the same thing, let alone a major asset like US Treasury bonds?
I personally would not buy US Treasury bonds but, at the same time, I would not sell them (short.) I might be wrong, as I often am, but my current opinion is that there are too many bond bears. I am particularly cautious because, although 2% yield for 10 year seems ridiculous, the economy may remain weak for a long time. If you are shorting bonds, you are implicitly making a bullish bet on the economy (the so-called re-flation trade) so you better be confident of that.
I like the Tsy short trade and have been scaling into it for a couple months. I am in HTD.TO and TBT. With HTD.TO you get both the USD weakening and Tsy rates rising trade. The amount of quantitative easing that will be required will create a currency crisis so I don't think this ends well for the US. What is more amazing than the crowded bandwagon is how hedgies rushed into the long side initially to benefit from the prospect of quantitative easing. I think the rush out will prove me right, but I do have stops in place since the convexity in here could move the Tsy price quite quickly if Ben does start buying up bonds.
ReplyDeletehmm... we'll see how that works out... I would take an opposite stance on both counts (bonds and US$)...the key, though, is timing...
ReplyDeleteYou may be right. Goldman is now saying there is no bond bubble due to deflationary pressures to manifest over next year. Of course they would then be toast as nothing whips a bank like deflation.
ReplyDeleteWell, analysts are analysts. Goldman was calling for $200 oil last year too...
ReplyDeleteI think you will get an opportunity to make some money. It would not surprise me if there is a big bear market rally based on the speculative re-flation trade.
The real question is what happens an year from now. I have a hard time seeing bond yields rising by then unles we get really strong economic data and deflation turns out to be completely false.