It's just a steepener, innit? It has its merits. It works in a few particular scenarios, but doesn't work in a variety of others. Good luck...
You think the economy's going to do better? That they're going to have to start raising interest rates causing bond prices to go down? There won't be a US market crash like Roubini said? You're gonna focus your doom & gloom on the bond market now? No thanks. I prefer to see gains much more immediate than 6-12 months.
Looks like the mkt likes the trade, BLSH... Mostly it's ahead of record supply and on the back of the expected UST duration extension, but steepeners have been all the rage yesterday and today both.
I think so. People need context. They take 4.37% on the 30 yr treasury because both inflation expectation and the amount of money supply out there for 'investment' justifies it. As long as the banking system continues to be a vortex that makes a huge sucking sound, investment dollars will support treasuries. M2 has done next to nothing all year, which tells me the word on the street that this is "liquidity driven" is probably not a function of "new liquidity" as much as its a function of investment outflows of late 08 just reversing. A one time event. http://www.federalreserve.gov/releases/h6/Current/ The Fed has another few hundred B of MBS to go, I think (without checking) so I think M2/M3 may still have an upward catalyst if current lending styles were held constant. That said, if inflation expectations remain grounded (which may happen as long as the Fed has policies that disencourage lending), the combination of more money printing (and wages from deficit government spending) might just be supportive of the long end more than the common gospel expects. Look at the Japanese: their public doesn't believe the economy will ever take off, so they bid the 30 yr to 2.2%. If you want to short a country on this prognosis, I see only one reason why the US bond short could be a better call, and its a stretch: the Japanese might feel 'duty' to buy their government bonds to be supportive of their own government's status quo... But I highly doubt that - in the end, fear runs the day and it won't continue. Like Einhorn says, their fiscal problems make our worries look premature. The unintended consequences of the Fed's policy to directly control lending are likely to surprise.... the new 'normal' will be a large base money and a smaller multiplier, at least until banks have no more losses to write off and reserves to build (2-3 yrs?). And we should be thrilled our debt is externally held by China and Japan: we pay high enough yield and it is still denominated in dollars. It is when our debt is denominated in foreign currency when it becomes dangerous to us (lessons of southeast asian crisis amongst many). I'd be more concerned about Japanese debt, as their debt isn't attractive enough to be held by anyone else but those with duty (Japanese). They are way closer to the breaking point than the US. I see 'revenue growth' on the US government's balance sheet as we get some kind of recovery that results from return of economic faith + increased base money flying around (even holding taxes constant today). That will add some credibility to support more debt issuance at relatively low yields. I think buying USDJPY is the best trade here, where short treasuries is even more a hero trade (if you're right, you'll make 30-50% sure, but you could've made that in one day in Amazon or some derivative of something else with considerably higher probability)... Maybe buy some gold, but if you bet treasuries go down, just know you are betting on banks ramping up lending bigtime. Without the banks, treasuries stay relatively close to where they are. And if I'm wrong, it is only in the condition of a concurrent USD collapse (again I'd bet on a JPY collapse before a USD collapse).
I wouldn't necessarily agree with you on yen... While they are, in fact, much closer to the abyss, they have been that way for a long long time now. If anything, the 'incestuous' nature of the Japanese economy (e.g. home bias of the bond mkt investors), suggests that the big bang won't happen for a while. The US doesn't get this benefit... In general, steepeners seem natural to me, here and now, if you assume US problems are not over. Of course, if you believe that US is likely to descend into a slow and painful, 'Lost Decade' type of morass, go long longer-dated USTs or mtges.
When is always the question. But decreased trade surpluses and a new political landscape definitely aren't supportive of the status quo. I'm convinced that if demand stays anemic, Japan's reckoning will happen sooner than later.
Maybe, although I am somewhat in disagreement with you on the timing... I assume you have seen this commentary: http://www.bloomberg.co.uk/apps/news?pid=20601039&sid=ay_85DJSvpac