Any American patriot, that loves this great nation...that can't afford to have 10 credit cards, should borrow enough to purchase the 11th.....
I also wouldn't underestimate the tendency of the Fed to overshoot during their hike/cut cycles. Looking at what is priced in to the market (and dealers are watching this closely for opportunities) in Eurodollars/Fed Funds, no one is discounting that the Fed may overshoot to 5.25% or 5.50%. At this point getting long Sep euros seems relatively futile (unless you think 4.75% is end point) in terms of risk/reward. Same with going long the 2-year note at 4.60% right here ahead of auctions and the Treasury refunding along with more Fed meetings. I'm not necessarily saying the Fed must go to 5.50%, but am looking at that as the trading opportunity that no one has priced in yet and possibly the best risk/reward profile.
so if a "too big to fail" institution like Fannie or Freddie starts to take on water, does Big Ben swap bad credits for a pile of zero coop's?
True indeed. Never underestimate the inertia of a bureacracy and the policy that they are on. Don't forget though, that one week ago, Euro$'s/FF were discounting 5.25% - only to rally about 20-25 points. I agree that there isn't much risk/reward in taking a position in Sept Eurodollars right now. I am further out - the Dec 07s - and I like my position. Might the Fed go too far? Absolutely possible - and that would certainly cause some short term pain in my position. Yet if they go too far, I think that means that they will need to cut rates sooner and more drastically. Housing isn't just slowing down in many parts of the country, it is collapsing. I can't really imagine how bad things might get if short rates go up another 75 basis points and stay there.
You may be right, have not seens strong move down in the 2yr yet. Still long an waiting with a tight stop.
For the rest of the week, I expect to see the second phase of the <a href="http://elitetrader.com/vb/showthread.php?s=&postid=1009127#post1009127">bounce</a>, during which the premium on long maturities will shrink.
The short end barely priced in 5.25% and didn't even think about 5.50%. I do agree though, best opportunity for getting long is in red month Euros right now, probably past mid-year.
I'm having second thoughts. I was expecting bonds to rally this morning and they're not. The levels at which the recent rally was interrupted (Friday's correction,Bernanke's speech) might have coagulated into resistance. Considering how close I am to my price target, I don't think it's worth the risk of sticking around so I decided to liquidate my remaining calls.