In my weekly preview I noted that I am thinking about buying TBT. I am still thinking about it and haven’t done it yet. I am still not sure the risk/reward is there yet as TBT has already rallied around 7% over the last 1 week.
There is also one more reason I am still hesitant to buy TBT. There is a report out today that PIMCO is now net short US debt. This is in essence very similar to the TBT trade I talked about. PIMCO is one of the most influential bond investors in the world. A report like this should have caused a larger rise in yields. The fact that yields are quite stable today means that maybe the market thinks these inflation worries are going to be short lived. Whatever the reason, whenever the market does not respond to a piece of news as expected, one has to pause and re-evaluate.
One issue with the treasury market is that a lot of central banks(including our fed) are active in it, so it is very possible for the treasury market to behave contrary to rational expectations, especially in the time frame of the moves. The reason is that central banks may conduct buy/sell operations for other policy objectives not just due to inflation expectations or solvency risk.
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