Anyone think about shorting the ten year bond?

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squirm
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Anyone think about shorting the ten year bond?

Post by squirm »

You would think that rates would have to rise at some point (unless we're Japan part 2). Back during the meltdown, I kicked myself for not shorting the ten year when it got down to a little over 2%...that was my target...So here we are with the ten year now below 2%. I noticed it touched on it's 1.67% and quickly bounced off.

So is anyone thinking about taking a position in shorting a part of the yield curve? Is so, what vehicle/etf do you prefer?
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docneil88
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Re: Anyone think about shorting the ten year bond?

Post by docneil88 »

I'm thinking of basically shorting a 30-year bond by obtaining a 30-year fixed rate mortgage loan to buy a house for the first time.
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snodog
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Post by snodog »

Isn't the fed trying to lower the longer term rates? If anything I'de think you would want to go long the 10 year.
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Majormajor78
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Re: Anyone think about shorting the ten year bond?

Post by Majormajor78 »

squirm wrote:You would think that rates would have to rise at some point (unless we're Japan part 2). Back during the meltdown, I kicked myself for not shorting the ten year when it got down to a little over 2%...that was my target...So here we are with the ten year now below 2%. I noticed it touched on it's 1.67% and quickly bounced off.

So is anyone thinking about taking a position in shorting a part of the yield curve? Is so, what vehicle/etf do you prefer?
No. Since the Fed have stated its position to keep rates at or near zero until 2013 I don't doubt (but am not sure) that the 10 year will remain at low rates at least until then.
"Oh, M. le Comte, it is only a loss of money which I have sustained... nothing worth mentioning, I assure you."
xerty24
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Post by xerty24 »

write call (edit: fixed) options maybe, but not short it. rates could stay this low for a long time and a short wouldn't make any money.
Last edited by xerty24 on Sun Sep 25, 2011 2:28 pm, edited 1 time in total.
Elysium
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Post by Elysium »

Go ahead, Rydex Juno fund will do it all for you so easily. Just make sure to take a look at this chart and trailing returns before you make the plunge.

http://quote.morningstar.com/fund/f.aspx?t=ryjux
Last edited by Elysium on Sun Sep 25, 2011 11:55 am, edited 1 time in total.
natureexplorer
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Post by natureexplorer »

I'm shorting the 30-year rate.
dodonnell
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Post by dodonnell »

To short interest rates ... you might choose a heavily traded 10 year or 30 year bond, you could use the futures contracts ZN and ZB on ECBOT. Your notional position will be somewhere between $125k and 145k, with a fraction of that required for margin.

http://www.barchart.com/commodityfutures/Financials

If you want to use options you would "purchase" a put option on the same futures (not "write" a put).

The last person who asked me this was a very intelligent PhD from IBM, who was, like Bill Gross of PIMCO, looking to short interest rates ... in April of this year.

http://www.finviz.com/futures_charts.ashx?t=ZB&p=d1

... i am not sure that worked out too well for him. I eyeball about a $10k to $20k loss per contract.

Be careful.
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Langkawi
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Post by Langkawi »

Dieharder wrote:Go ahead, Rydex Juno fund will do it all for you so easily.
Nonsense. Inverse funds should not be used for positions held open for more than a day.
xerty24
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Post by xerty24 »

dodonnell wrote:If you want to use options you would "purchase" a put option on the same futures (not "write" a put).
thanks, I fixed my early post. buying a put would require rates to rise (or at least treasury prices to fall) in the near term. if you're afraid there may be a long period of no change, as happened in Japan, writing calls might be better. then you win as long as prices are flat or fall, but lose if they rise.
Call_Me_Op
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Post by Call_Me_Op »

snodog wrote:Isn't the fed trying to lower the longer term rates? If anything I'de think you would want to go long the 10 year.
That info is already "baked into" the current price. Going long at 1.7% would seem to have more downside than upside, but nobody knows for sure.
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squirm
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Post by squirm »

Hey Op. How's the T...no longer an issue I hope.
Last edited by squirm on Sun Sep 25, 2011 8:20 pm, edited 1 time in total.
Topic Author
squirm
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Re: Anyone think about shorting the ten year bond?

Post by squirm »

Majormajor78 wrote:
squirm wrote:You would think that rates would have to rise at some point (unless we're Japan part 2). Back during the meltdown, I kicked myself for not shorting the ten year when it got down to a little over 2%...that was my target...So here we are with the ten year now below 2%. I noticed it touched on it's 1.67% and quickly bounced off.

So is anyone thinking about taking a position in shorting a part of the yield curve? Is so, what vehicle/etf do you prefer?
No. Since the Fed have stated its position to keep rates at or near zero until 2013 I don't doubt (but am not sure) that the 10 year will remain at low rates at least until then.
Things can change very quickly. The ten year was just at 3% only a few months ago. In addition, China will simply offload their longer term duration in favor of the shorter end curve, countering the feds action.
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squirm
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Post by squirm »

snodog wrote:Isn't the fed trying to lower the longer term rates? If anything I'de think you would want to go long the 10 year.
What else can they do? If rates go lower it's because the economy is slowing down further. The only thing left is to try to go after the 30 year.
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squirm
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Post by squirm »

dodonnell wrote:To short interest rates ... you might choose a heavily traded 10 year or 30 year bond, you could use the futures contracts ZN and ZB on ECBOT. Your notional position will be somewhere between $125k and 145k, with a fraction of that required for margin.

http://www.barchart.com/commodityfutures/Financials

If you want to use options you would "purchase" a put option on the same futures (not "write" a put).

The last person who asked me this was a very intelligent PhD from IBM, who was, like Bill Gross of PIMCO, looking to short interest rates ... in April of this year.

http://www.finviz.com/futures_charts.ashx?t=ZB&p=d1

... i am not sure that worked out too well for him. I eyeball about a $10k to $20k loss per contract.

Be careful.
Thank you for that info. While I don't have a PhD, I also know that even best and the brightest often will blow calls on rate directions.

The cushion seems to just about gone on the ten year. I think it would be reasonable that under 1.5% for the ten year would be short lived. If not, then our economy and/or the world economies have some deep and profound problems.
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stratton
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Post by stratton »

Ask the people who were planning on shorting the 30 year Treasury bond six months ago. That didn't work out so well.

Yahoo 6 month NAV chart of TLT and EDV

30% to 50% gain on those long term bonds!

iShares Barclays 20 Year Treasu (NYSEArca: TLT )
Vanguard Extended Dur Trs Idx ETF (EDV)

Paul
...and then Buffy staked Edward. The end.
Elysium
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Post by Elysium »

Langkawi wrote:
Dieharder wrote:Go ahead, Rydex Juno fund will do it all for you so easily.
Nonsense. Inverse funds should not be used for positions held open for more than a day.
Yeah, you should trade it every day, go for it.
dodonnell
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Post by dodonnell »

squirm wrote:...

Thank you for that info. While I don't have a PhD, I also know that even best and the brightest often will blow calls on rate directions.

The cushion seems to just about gone on the ten year. I think it would be reasonable that under 1.5% for the ten year would be short lived. If not, then our economy and/or the world economies have some deep and profound problems.
Before you put on your short ... answer this question:

Since we know a 10 year T with a coupon of 5%, will be priced at par (or $100) if interest rates go up to 5%. If a 10 year bond is currently priced at $125 with a 5% coupon, then what will it's price be if interested rates temporarily go to zero for the 10 year bond?
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tipswatcher
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Post by tipswatcher »

You would think that rates would have to rise at some point (unless we're Japan part 2).
Japan Part 2 x 2, that is a possibility.

I am not shorting Treasuries. Definitely not buying them, either.

Although I am a fan of super-safe investments, I just can't see the appeal of Treasuries right now. I have been a buyer of TIPS, but only until mid-year. Now it's time to sit it out.

The stock market, as it declines, is starting to look like a better 'almost-super-safe' investment. At least the solid dividend payers.
TIPS: Perfect investment for imperfect times?
Snowjob
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Post by Snowjob »

I'm taking advantage of the low rates with margin / adjustable debt
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