Wednesday, 30 January 2008

Buying 10y Treasuries

Just paid 116.33 for the 10y Treasury future (March), in $25/cent, which is about
$250 per basis point.

The on-the-run 10 year is trading at 3.68% today. Whilst it has come in from 4.50% just 3 months ago, I think the picture has fundamentally changed from back then. The Fed has shown its willingness to bring rates down a long way, GDP growth is slowing FAST, just 0.6% in the 4th-quarter, and there is plenty scope for deflation talk to begin as profits start to fall, companies start reducing prices, and unemployment begins to drop. All we need to nail it is for commodities to start to come down. I guess that one is a playoff on global demand falling against faith in fiat currencies deteriorating. I've got to think that the demand side wins in the near term.

And when do you see the Fed next hiking rates? The economy is in the process of falling apart, and I can't see the end of the tunnel. Long the 10 year 20bps above Fed Funds with significant cuts still to come, looks good to me.

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