The last remaining bubble, one that will pop and not simply deflate, is our Treasury markets... The signs of it popping were quite evident on Friday, as the flight to quality didn't take place.. A 30 year bond, with a 4.5% yield, and sub AAA rating, is quality? I didn't think so.. If the Petrodollar recycling takes a breath, and the Asians get an itchy trigger finger, we could see skyrocketing rates... I think it's possible that the point spread between 10 year notes and 30 year bonds could rise to as high as 17 points 10yrs premium to the 30yrs..and this trend could take place over the next 2 years....we are currently 1 point premium to the 30yrs right now...
money managers need a place to park funds, the only alternative or conservative alternative is to direct flows into government bonds. its still too early for this trade. Let the system breakdown first, during the rebuilding process thats when this trade should be placed.
It might be.. there may be 3-4K per spread risk here... But I think the upside is huge... You don't think the system breaking down will be intimately correlated with a spike higher in bond yields?
Buy short, sell long.. Not sure if buying 10's, selling 30's is the way, but that's how I look at it... Maybe buying 5's or 2's, rather than the 10's.. but selling 30's is a given..
Would you use some sort of leverage? It seems like if you didn't it wouldn't be very profitable. Sorry for being a noob, but I know next to nothing about bonds.