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.