Friday, May 08, 2009

Demand for US Treasuries Poor in Latest Auction

Yesterday, yields on 30-year US Treasuries skyrocketed on poor demand in the latest bond auction.  Yields jumped from 4.1% to 4.3%.

Tough to imagine why demand would have been so lackluster - maybe it's the fact that the US government will never be able to pay any of this debt back?  That is, without printing it?

Last month Marc Faber told Bloomberg that bond yields bottomed for good on December 18, 2008 - and he now expects them to rise for the next 15-20 years.

So is this breakout finally the cue to short long-term US Treasuries?  In the short term, I could see rates heading lower once again, if one of the following two things happen:
  • The Fed steps up their purchases of long term debt.  In the long run this is highly inflationary and won't work, but in the short term they could drive rates down.
  • And end to this bear market rally could once again trigger the "flight to safety" trades - which previously buoyed US debt and the dollar, at the expense of everything else.
Long term this appears to be a no-brainer, as interest rates should head to the moon.  It's just the apparent obviousness of the whole thing that gives me hesitation from putting this trade on right now.  I am considering picking up some TBT for my Scottrade account, and just doing a "buy and hold" on it.

Shout out to our buddy Brian Hunt at The Daily Crux for his coverage of this story.

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