Short Treasuries? (TBT) China Might Lose Appetite for US Debt. But Will U.S Print and Fund Its Own Debt? - Distressed Volatility

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Thursday, January 8, 2009

Short Treasuries? (TBT) China Might Lose Appetite for US Debt. But Will U.S Print and Fund Its Own Debt?

I keep reading articles saying now is the time to short treasuries. In fact it was the cover story of Barron's this week. There's also news that China could lose it's appetite for U.S debt to fund its own problems. Now might be a great time for China to unwind into treasury strength since the U.S Dollar is right at late 2004-05 levels and 30 year treasury prices are at 132'25, up 18% from 112'00 in '05. This is only if China loaded up on Treasuries in 2004-'05 when Greenspan didn't understand why the yield curve was flat when inflation was a concern. Not sure if the unwind would work smoothly right now but look at the chart below. Also look at the chart of the UltraShort 20+ Treasuries ETF. IF it breaks above 44.12 on strong volume it could reach a $50 handle. If not a retest is in the works.

US Dollar:30 Yr Treasuries (
TBT (UltraShort 20+ Treasury ETF)

Here are bits from articles I've read recently. They are from respected sources and the whole general idea makes sense. But the Fed is talking about buying long term treasuries to keep borrowing costs low which could 'artificially' mediate the effect. We'll see. I also provided an article from FT Alphaville re: Goldman Sachs not believing the bubble hype, for now at least.

Barron's (1/5/09)
Get Out Now!

"The biggest investment bubble today may involve one of the safest asset classes: U.S. Treasuries. Yields have plunged to some of the lowest levels since the 1940s as investors, fearful of a sustained global economic downturn and potential deflation, have rushed to purchase government-issued debt." click link...

New York Times (1/7/09)
China Losing Taste for Debt From the U.S.

"HONG KONG — China has bought more than $1 trillion of American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home, a move that could have painful effects for American borrowers. The declining Chinese appetite for United States debt, apparent in a series of hints from Chinese policy makers over the last two weeks, with official statistics due for release in the next few days, comes at an inconvenient time." click link....

Gold Seek (1/8/09)
Treasury Bills, Can You Hear The POP!?

"This leads us to US treasury bills. It is the final bubble that has already popped and the air is quickly escaping. It is of great significance to the US economy as the US bond market far exceeds US equity markets. Other than gold, treasury bills and corporate bonds are the only asset classes to gain in 2008. It is an understandable outcome, given the general perception that T-Bills are a safe haven in times of uncertainty. But now the time has come for caution." click link....

The Market Oracle (1/9/09)
U.S. Dollar Dead Bounce Ends, Treasury Bond Bubble Begins to Dissipate

"The marquee line best describing the past two to three months has been that the Dollar Death Dance has been fueled by failure of US banks & corporations, along with sponsored assaults against speculative hedge funds. The climate has changed from liquidation and bankruptcies, obviously steered and exploited by the Powerz, toward more legitimate attempts to have a recovery initiative take root across the landscape, It is fast approaching a wasteland. The most vivid signal of market manipulation, intended to benefit the USGovt borrowing costs, and designed to promote the totally false notion of a Flight to Safety, has been the USTreasury bubble." click link....

FT Alphaville 1/8/08
Blowing bubbles, US treasuries edition

"Forget what you might have heard. There is no bubble in the US government bond market, according to Goldman Sachs. And how has Goldman come to this rather surprising conclusion? With the help of Sudoku, the popular logic-based number-placement game, of course. Here’s what Francesco Garzarelli, chief interest-rate strategist at Goldman in London, has been telling clients on Thursday." click link...

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