The Sky Is Falling…And So Will Treasuries (by phantomcapital)

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Here is a new, novel, and different trade idea:  short treasuries.  Wait, people have been saying that interest rates have to eventually go up for the last several years?  And the most powerful financial force on the planet, the Fed, has been pinning interest rates as low as possible?  Hmm, well in that case SHORT TREASURIES.

Every great trade has a technical and fundamental backing but it also has a great story for why now.  United States Treasuries have finally painted a beautiful picture for why they will fall and interest rates will rise. 

$TNX Daily

First, let us look at the Fed.  The Fed can do one of two things.  They will continue an endless stream of quantitative easing thus interest rates will stay where they are now.  Or they slow down their constant manipulation and interest rates not only rise but rip back to historical norms.  Heads, I win, tails, its a tie.

$TYX Daily

Second, let us examine the wonderful world of flight to quality.  Everyone and their brother now knows Europe as a whole is borderline insolvent, France is about to burst into flames, and there is a 21% chance Greece will actually fall into the Mediterranean.  This is old news.  The bottom line is that if the “smart” money wanted to flee to quality, i.e. US Treasuries, THEY WOULD HAVE DONE IT ALREADY.  Are treasuries (TLT) near their yearly highs and rates (10 and 30) near their yearly lows?  Of course.  However, one would think that they would be making extreme moves by now.  Instead they are touching their range bound levels which is odd seeing one of the largest economic areas in the world is in total chaos.

TBT Daily

Finally the technical view.  I’ve already presented three charts for the 10 year yield, the 30 year yield, and TBT.  If I had no knowledge of any news, I’d say they are testing very obvious technical support areas.  The charts speak for themselves.

The bottom line is this, I love entering into trades where there are extreme emotions involved.  According to Europe and CNBC the sky is falling and the Apocalypse is upon us.  Treasuries should be a hell of a lot higher then they are now if a true flight to quality is in force.  But they aren’t.  So I, as of today, am SHORT TREASURIES.