Bonds are in a difficult position now. Bonds have not seen a bear market since '71-'80. That was the last great bear market in bonds.
http://www.mrci.com/pdf/us.pdf
While at the same time commodities were at their peak.
http://www.mrci.com/pdf/cr.pdf
We are talking major shifts coming up. U.S. treasuries that have long been held by pensions and insurance for annuities etc. are now paying such low interest that investors are seeking other means i.e. other country bonds for higher yields.
In order for the debt of the U.S. to be financed by way of treasuries, the yields will have to be higher to attract investment money. As the yield goes up, the price goes down.
If you agree with the assessment of lower bond prices in the future, one way to trade this other than the futures market is to buy puts on a number of bond ETF's such as TLT. Now as with any investment there are bound to be swings. So buying puts takes good timing. If you are like me and cannot time very well, then take the diagonal spread approach.
This drop in bond prices will be a slow process and will take years. Plenty of time for the buy and hold to participate. It will not be a pretty picture since so much is at stake with borrowing to fund gov projects and retirements etc. But it is setting up to be this way. Many will razz me about the about links to charts, since I am so much of a fundamental trader, but those charts speak volumes.
2 comments:
Dell,
I have asked about a long term like 1 year or longer put calendar on the spy and would you suggest a similar approach to the tlt?
What about buying the Jan 2010 on the dba, a commodity etf, and sell every couple of months as a long call calendar?
I noticed you mentioned 6 months but you also have some leaps on gold. Can you go long term like that when you are confident of the trend as we are?
Thanks.
Next week I plan on loadng up on 2010 DBA calls and selling the front months. So I think you know where I stand. If you look at CRB chart we have been non stop rise the past few months. These corrections make for great entries. My only problem is to try and calculate what strike to sell since this thing should run up fast.
TLT is one of those rare put calendars. It will be such a slow process that it will work (in my humble opinion) So a leap should work.
Not sure a leap on the S&P is the most profitable, but then if you time it you should do okay. You know me and my timing so....
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