First of all congratulations on being on the right side of the big move today. However, personally I expect to see the move reversed next week and I bought some more on the close.
I don't believe this will be the case for the next several months. If I'm right and we see a breathtaking bear market rally in equities and commodities through summer 2009, the Fed won't need to move on Treasuries, everyone will doing what the Fed wants anyway, and putting their money to work. That means the already crowded long side trade on Treasuries will collapse. Time will tell...
Wow, that's scary. Where the heck did the time go? :eek: At least I hear I'll get a set of steak knives...
Very interesting analysis. But wouldn't that put mortgage rates at a level unacceptable to the Fed? They have said that they would like to see 4 1/2 per cent mortgage rates. I suppose that conceivably mortgage rates could be brought down via direct mortgage subsidy programs instead of by lowering long term bond yields....
Yes, mortgage rates will rise, at least temporarily. But the real problem hasn't been the cost of money being too high, it's been the availability of it. So once banks start opening up the spigots, a rise in mortgage rates won't be as big an issue. But for the record, while I expect a collapse in Treasuries in the coming months, I also think that by summer it will be an opportunity once again to go long, once the bear market rally in equities and commodities is over and we start sliding back down toward oblivion.
I'm not smart enough to know what going to happen this summer. But in the short term I agree today's decline probably halted the recent up trend.
It is certainly possible that the main poster in this thread is right and that a mega up-move in stocks is about to take off. In this case presumably the "smart money" has just switched from long bonds to long stocks. To cover this possibility, I will certainly buy some stock index calls. However, the big fall in the long bond this past day occurred on very light holiday volume. Whoever was driving/supporting the market until now may have simply taken the day off. I expect that that "whoever" was the Fed. Unless there has been a sudden change in game-plan at the Fed and Treasury (which is always possible - maybe related to the change in Administration), they seem to me likely to bid it up again once they are back at work. Another possibility is that it was speculators who were driving the long "bubble" and that they took profits. There certainly are some big speculators playing this up-move. However, why would they liquidate so suddenly, with little evidence of other liquidation in other markets? Maybe somebody just wanted the long positions off their books across year-end. Even if the fall this past day is reversed in the next few days (as I personally expect). it certainly hints that the bubble will burst eventually. I do expect a collapse in the long bond in time. It is always possible that it could occur sooner rather than later. One scenario for a long bond crash to occur sooner would be for China to sell some of its vast holdings of long U.S. Treasuries. Hmm could this have been a show on the part of China to demonstrate their power to leverage their position in trade and currency negotiations?