ETF investment idea: PST

Any thoughts on this?

I would enter the position with IEF as a hedge. Longer term, PST is a good play, it pay 200% of decline in treasury, however, given Fed’s indication they may buy treasury to keep the borrowing cost (mortgage) low. Buy PST and buy IEF to soften the short term uptick in treasury.

I don’t remember the details, but when the Fed shot their last interest rate bullet I believe they said they’d be purchasing long-term treasuries. As opposed to shorting the 7 - 10Y, I’d be much more in favor of shorting maturities of 2Y and below since they are all yielding under 1. That said, the risk of the Fed purchasing to keep yields low is present throughout the yield curve.

See my thread on short treasuries theses. And the above poster’s comment on shorting shorter maturities just because their yields are low makes as much sense as saying that Berkshire Hathaway is a better short than Citigroup because BRKA’s stock price is much higher.

JohnThainsLimoDriver Wrote: ------------------------------------------------------- > See my thread on short treasuries theses. And the > above poster’s comment on shorting shorter > maturities just because their yields are low makes > as much sense as saying that Berkshire Hathaway is > a better short than Citigroup because BRKA’s stock > price is much higher. Does it? I’ve never shorted a bond and don’t claim to be an expert, but assuming rates can’t go negative for any extended length of time it seems like your downside is limited. No?

The Fed has much more power to manipulate short rates vs. long rates, and the argument that the Fed is going to buy down the curve doesn’t hold as much water now that they’ve committed to reissuing the 7 year note and doubling the number of 30 year auctions. The upside potential in shorting longer maturities is much higher at this point. Short rates may not have much further down to go but the Fed can pretty much hold them at zero indefinitely.

JohnThainsLimoDriver Wrote: ------------------------------------------------------- > The Fed has much more power to manipulate short > rates vs. long rates, and the argument that the > Fed is going to buy down the curve doesn’t hold as > much water now that they’ve committed to reissuing > the 7 year note and doubling the number of 30 year > auctions. The upside potential in shorting longer > maturities is much higher at this point. Short > rates may not have much further down to go but the > Fed can pretty much hold them at zero > indefinitely. You clearly know more than I do about the recent happenings with treasury auctions, but I’m not convinced that shorting the long end would be wiser than the short end and I definitely don’t think your original stock analogy makes sense. Perhaps your upside potential is larger with the long end of the curve, but your downside potential is also larger. Whereas, as far as I can see, the potential distribution of returns by shorting the short end is non-normal. You have very little room to lose and much more room to gain. With regard to: > above poster’s comment on shorting shorter > maturities just because their yields are low makes > as much sense as saying that Berkshire Hathaway is > a better short than Citigroup because BRKA’s stock > price is much higher. In any case the short position loses money when the price rises. With regard to a bond yielding 0.5% the price rise is limited (hopefully) by the yield falling to zero; whereas either of the stocks in your example can rise in price to infinity. I suppose that you could take an offsetting position to limit losses in the stock example, but in the bond example you wouldn’t have to. The price would hit a wall, again hopefully, and then you would truly only have an upside. At least, that is how I see it.