Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Why Only Treasuries?


I have never seen, relative to an economic backdrop like we have now, so little value in corporates, agencies, mortgages, etc.


I have received many inquiries on this topic. Let's discuss why I am looking heavy into 2's, not 10's, and avoiding corporates altogether and now mortgages as well.

Obviously, a two year Treasury has less duration (see Bond Basics) than a two note and has less volatility for a given change in rates. My firm is negative on the economy and expect the Fed to ease. So why not 10's? Because of the current shape of the curve. We already own some 2's from 5.25% and took some profits in 10's as mentioned here previously.

Let's say 2's go to 3.5%. I think the curve will be in a 'curve steepener.' In other words, rates on 2's will fall faster than the rest of the curve, taking the curve from flat to a more normal, steeper curve, prior to the end of the Fed's ending their easing campaign. So we buy TWICE AS MANY 2's as we would 10's and think we can actually make more money with the same or less amount of risk. In addition, we always like to ask ourselves, "what if we are wrong and rates rise?" Obviously, 2's will crush 10's in performance and we have our 2's to sell to extend into more duration.

Why only Treasuries? Well. Put it this way. I have been in the business 26 years or so. I have never seen, relative to an economic backdrop like we have now, so little value in corporates, agencies, mortgages, etc. I think spreads will eventually widen, perhaps DRAMATICALLY, which is normal in slowdowns. Here is a chart courtesy of Ned Davis Research, showing the measly spreads available today.

< Previous
  • 1
Next >
Positions in various front end Treasuries

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos