Wednesday, April 29, 2009

Covering My Short Against Treasury Bonds

Why I'm Covering My Short Against iShares Barclays 20+ Year Treasury Bond -- Seeking Alpha:
I am covering almost my entire short against iShares Barclays 20+ Year Treasury Bond (TLT) ahead of the Fed meeting Wednesday.

I'd like to talk about bonds but this market is completely out of the hands of supply /demand - the Federal Reserve has made this their plaything. But the market has started to make the Fed unhappy and prices are faltering, causing yields to begin to rise. The all important 3% on the long bond is the line in the sand - each time we get there Bazooka Ben says no more! We can't have mortgage rates go to 'unnatural' levels like say ... 5.4%. So I'd expect trench warfare to be announced Wednesday to get this to 'bend' to the will of the Federal Reserve. Because that is how central planning works.

If I knew the Federal Reserve were not involved, I would be piling into this short hand over fist, but we now have to learn to trade under the USSA regime. On the chart below you can see the huge reaction 6 weeks ago when Uncle Ben announced quantitative easing; I want to avoid that in case he comes with a bigger bazooka tomorrow

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