Friday, July 30, 2010

Bookkeeping: Covering iShares Barclays 20+ Year Treasury Bond (TLT)

I am closing the last smallish piece of a long held short on iShares Barclays 20+ Year Treasury Bond (TLT).  I, and many others, through yields would increase this year, as the mounting debt load in America finally caused the bond vigilantes to demand higher rates.  And/or inflationary pressures mounted.  Instead we're seeing bonds of all maturities - 2 years, 10 years, 30 years see their yields crushed, some at record levels despite an epic bout of deficit spending and debt acquisition.  There is one other country that "enjoyed" such a situation, and it starts with J and rhymes with Napan.  

From an economists point of view it's all fascinating to see how this ends up, since there are many variables that separate the 2 countries (Americans are spendthrifts, Japanese are savers; much of America's bonds are in hands of foreigners, almost all Japanese debt is in hands of their citizens and banks) - but as a citizen the "message" the bond market is sending is all a bit depressing.  The only real positive I suppose is we might get to an era where 30 year mortgages are going to be handed out at 3.75%.   But with 5 year CDs paying 0.75% annual.

Believe it or not, while intellectually I want to be correct on things I see out in the future economically, as a citizen of the country I hope I am very wrong.  Just as I did back in late 07. [Dec 4, 2007: First Half 2008 Predictions]  Unfortunately I was correct... if anything even my abject pessimism at the time was not negative enough.

So with that I am crying uncle on this short, a position I've held this January 2009.  I've had a few wins in this name along the way in terms of trades, but just as many losses so over time there has been little value here.  This last batch is small (0.6% exposure), but will exit at a 14% loss.

No position

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