Long bond, yes, and it is not for the faint of heart. I use options, spreads, guaranteeing the downside risk is contained, wouldn't even think of doing it any other way. But that's me, others have higher risk tolerances.
I long bonds too and just to protection from possible interest rate spike I plan to add short position on equities index.
To answer your question about trading -- at least one of the previous posters used to be a local in the 30 year pit. By the way I trade the 30 year through my computer - but that does not mean you want to listen to me. I am scared shitless of being more leveraged in Real Estate than I can believe. But when home builders are letting me put 10 percent down in the hottest market in Florida and probably the country and not going to deliver product for a year to 18 mos. I figure I like the trade. They are definitely controlling supply and hiking prices every month. If I am right I will have made great money on two homes. If I am wrong well you will see me renting a home in San Diego and you will see my ad on a billboard asking if you have been injured in an accident. "aggressive representation" your insurance company has lawyers -- you need one too.
10% interest? Your not from this country are ya? From 1796 to present day, excluding flower bonds, the average yield on a US govt long bond has been 3.7%. 1980's were an anomally in rates just as the Great Depression was an anomally.
What people need to understand, when trying to explain bond yields, is that today's markets are dominated by players who DO NOT have "profit maximizing" objective. Normal investors want to maximise their profits and get compensated for taking risk. On the other hand in case of Foreign Central Banks, they don't care if the bonds make any money! Bank of Japan has over 100bn losses from their practice of buying US bonds last 3yr. They buy them to support a mercantilistic policy or to subsidize employment etc Also dominant are players of the "carry trade" who are "arb'ing" between various instruments, simply because the US Fed has been so predictable for so many years that they can be sure they'll have time to abandon the ship on time. At least they seem to think so and afterall, it's other people's money they're playing with. To folks who insist in bringing up the subject of "low inflation", citing the manipulated CPI numbers, I can only suggest that they ask themselves if the 4% offered last few years, would help them maintain their purchasing power, or heaven-forbid, increase it a bit. i.e. view things from the perspective of an INVESTOR / retired person etc. It helps to just look what value investors, like Buffet, do. He's sitting on cash and no single long-term bond. Even the largest bond fund managers, PIMCO, won't touch the US long bonds.
Here is a strategy that I'm happy with right now. 90% of my capital is in long term cd's that pay between 4 and 5 percent. If bond prices go down then I can short them with ryjux. My down side risk is only half of the yearly dividend or 2.5% max and my loss in principal is zero.
mtzianos, I agree with most of what you're saying. BUT the market is what it is. I can't concern myself a great deal with where the market should be as long as the tape is telling me something different. You speak of Asian Central banks as buyers. True. But you wanna see a carry trade how about BOJ vs. Treasuries. It's not like these Asians aren't getting a pretty decent relative yield. Domestic arbs? They've always been there. Arbs are as much a function of low implied volatility in options as they are the curve. After all someone buys puts. Plus if you think there's a lot of inflation look at the price of corn. IMO the economy sux.
You think the BoJ cares what the yield on the bonds its buying to keep their currency from floating higher against the dollar? CB's don't care about yields. Buffet is sitting in cash? He was said to be buying foreign bonds a few years ago. He was buying US zero's and bonds back in the late 90's. He's not sitting on cash. Didn't Bill Gross say the Dow should be at 5000 a few years ago? Like anyone should care what that guy has to say.
If you look at yield chart, the current yield's still at the same low level as March 2004, when the Fed hadn't started to raise rate. This makes me really puzzled. Could anyone explain? Thanks.