Treasuries

Treasuries dropped a bunch yesterday, as the 10-yr yield rose to a high of 4.10%. This move happened with the news that first quarter GDP growth was revised upwards from 0.6% to 0.9% and futures markets showed 100% chance of Fed keeping rates steady at their meeting next month.

I believe that the market is much too optimistic and that the Fed will have to keep cutting. Maybe not next month, but soon. Housing is still getting worse. Unfortunately, Treasuries have rebounded today. I lost a great opportunity yesterday. I may still go in; I haven't decided yet.

What I have put a lot of thought into is my vehicle: TBT. This is a Proshares Ultrashort Lehman's 30-yr. Treasury Bond index. The 30-year duration gives me the most interest rate exposure. I can get two times leverage on the bond prices. So, if I want to bet on bonds making a rally and rates falling, I would short TBT.

The 30-yr. Treasury is still lower than it has been since stocks hit their all-time highs last October. Looking at the charts gives me a lot more conviction in this play. Perhaps it's time to dive into some real leverage and buy some 30-yr's from Schwab.

Update: I looked over the Fed's TOMO today. A week ago, the actual fed funds rate was right around 2.00%. Over this past week, that has spiked. Today Treasuries were accepted at 2.15%. This makes me suspicious that the Fed either can't keep rates down, or that they are signaling a rate hike. I think I'll sit tight on this today.