30 Year Bond offering stronger than expected...
"I feel a great disturbance in the Force, as if millions of voices suddenly cried out in terror, and were suddenly silenced."
―Obi-Wan
At 1:30 PM today I saved a fortune. How?? Well, this morning I did not buy TBT (Ultra Short 20+ Year Treasury ProShares). You may be thinking to yourself, "Well, why would you? You are an income investor not a day trader." You would be exactly correct. But, like all people I am not entirely rational and can be tempted to play the market when I think that I "know" something.
The US Government has been on a spending spree and investors are getting nervous about inflation. So nervous in fact that they recently demanded a higher yield on the 10 year treasuries issued earlier this week. The reasoning is obvious, if investors are worried about inflation and demand a higher return on the 10 year, then the auction today on the 30 year should be even worse and require a higher than expected yield...
The Exchange Traded Fund (ETF) I named above, TBT, is set up to return the inverse of treasuries. Treasuries go up (meaning their yield goes down) and TBT goes down. If treasuries go down (yield goes up) then TBT stands to see a substantial gain. So, late last night (using a limit order) or early this morning (at the open of the market) I could have placed a short term bet that the treasury auction today at 1:30 went badly by buying shares of TBT. Had I decided to use my margin account the bet could have been substantial and the subsequent good auction resulted a gloomy afternoon. (It did for some people in my Investment Management course which is the inspiration for the Jedi quote above.)
Instead reason prevailed. I reminded myself about who we are here, Income Investors, and stayed the course. Now I am watching as TBT drops and the dividends from KO (Coca-cola), LRY (Liberty Property Trust), ED (Con-Edison) etc. keep rolling in.
I can wait for their slow capital appreciation.
The goal here is not to get rich quick. The goal is to preserve and grow the capital that provides an income for your family.
Feel free to drop me a question...
posted by J. Sweeney @ 10:43 AM
1 Comments
1 Comments:
Just read about this issue yesterday; see below:
"The higher yield needed to get this done is what the bond market is focused on and the reason for further selling after the auction," said Peter Bookvar, a market strategist at Miller Tabak.
The 10-year-note auction is a reopening, meaning the debt sold will mature on the same date and carry the same coupon as the previous sale. This is the largest reopening of 10-year notes, according to Wrightson ICAP.
Still, other metrics looked at indicate decent demand from investors for the government's debt.
Bidders offered 2.62 times the amount of notes being sold, compared to a so-called bid-to-cover ratio of 2.39 at the last five reopenings. See results on Treasury's auction website.
Indirect bidders, a class of investors that includes foreign central banks, bought 34.3% of the sale, the highest since October. The average in the last five sales was 23.2%.
On Tuesday, the government received very strong demand for its sale of $35 billion in 3-year notes . In particular, indirect bidders took 43.8% of the sale, the most since February and indicating continued demand from overseas investors
The government will sell $11 billion in 30-year bonds on Thursday, which will also be a reopening.
Treasurys remained lower after the Federal Reserve said the economic downturn is moderating, though none of the districts saw growth returning this year.
Post a Comment
Subscribe to Post Comments [Atom]
<< Home