Watching TBT Action (Inverse 20+ Yr Treasuries)

A few weeks ago I posted about the ProShares UltraShort Lehman 20+ Yr Treasuries ETF (TBT). On Jan 7 TBT could not break above the 42-43 resistance level and eventually retraced back to the 61.8% fib level around 38.5. Buyers still couldn't resist this thing and quickly pushed it back up to resistance. It closed today at 42.84 up 6.22% on some decent volume.

What is driving this action? I'm not exactly sure but data speaks for itself. It looks like China swapped some long-term Treasuries for bills.
A few quick words on the November TIC data (Brad Setser)

"China sold $9.2 billion of long-term Treasuries. But it also bought $38.2b of short-term Treasuries. China’s total Treasury holdings are up by $29.1b. By contrast it sold $3.1b of long-term Agencies and also reduced its short-term holdings by about $5 billion. China reallocated its US portfolio, but it hasn’t cut back on its dollar purchases."

Obama's reflationary policies could also be scaring people out of long-term Treasuries and articles coming out of Asia are not helping the bulls.
China's US bond appetite to slow: economists (AFP)

"SHANGHAI (AFP) – China is expected to ease its spending on US debt as growth in its foreign exchange reserves slows and Beijing seeks to fund its own economic stimulus plan, analysts say."


‘Time to Sell’ Treasuries, Biggest Korean Fund Says (Bloomberg)

"Jan. 19 (Bloomberg) -- A rally that sent U.S. Treasuries to their best year since 1995 is coming to an end, South Korea’s National Pension Service, the country’s biggest investor, said. U.S. government efforts to combat the recession will prompt the Federal Reserve to raise interest rates this year, said Kim Heeseok, who oversees $160 billion as head of global investments for the service in Seoul."

But then again you have a Government that is willing to artificially prop up long-term Treasuries to "anchor" long term rates and narrow the spread to spur growth. So if these countries happen to unwind their Treasury positions it might not even have an effect on the market.

If I were to go long I'd watch for a break out above 44 with conviction to prove it had enough confidence to reach 52. Once it broke I'd probably buy cheap insurance and use protective stops. It looks like there were some interesting trades today in the Feb calls. From the 50-56 strike over 4414 contracts traded with 94 contracts open. There must be some spread trades going on unless someone is levering up for a BIG Treasury dump. I'll be watching this.


Comments

  1. Also wondering what would happen if Moody's, S&P downgraded U.S's credit rating..........

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  2. If the 20 year treasury goes higher, does that help the indexes go higher?
    I'm a novice when it comes to understanding treasuries.

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  3. Hi Dvol,
    My membership chart says TBT will have a hard time getting above 47 next few days.

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  4. This it.. Barclays 20+ Year Treasury Bond Fund ($TLT) http://us.ishares.com/product_info/fund/overview/TLT.htm. The $TBT corresponds to twice (200%) the inverse (opposite) of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Index.
    http://www.proshares.com/funds/tbt.html

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  5. looks like it's at the 50 day ma, wouldn't be surprised if it pulled back to retest... Eventually.

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  6. It looks like TBT will start coming down soon. So, that means TLT will go up.
    If TLT goes up, does that mean the market will go up?

    zee
    Thanks in advance

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  7. It's hard to say.. Either people are dumping and putting it in gold to get out of U.S, or like the first article said, they are swapping long term treas for short term probably for inflationary risks down the road, which could be bullish in a way. Hard to tell, watching the $US too....

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  8. Nice call... Treasury bears are getting scared of the FED today

    Fed Enters Uncharted Policymaking Territory

    http://www.washingtonpost.com/wp-dyn/content/article/2009/01/26/AR2009012602343.html?hpid=topnews

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