I’d be curious to see what everyone’s interpretation of the yield curve is, primarily inverted, flat and sloped. What types of investments would you normally invest during those shapes and what’s your reasoning for it. PJStyles
Well generally everything’s fairly priced when you buy it. The only way to achieve alpha is to take a view on future changes and cross your fingers.
on sloped curve, buy long term short t-bills, make the spread, and lever up 20 times. dont mark to market b/c that;s dumb and will only scare your investors.
If the yield inverts, you are then f***ed.
I don’t know what MFE is talking about there (how do you invest in T-bills and not mark them to market? “Well, I know that’s what the WSJ says, but we’re marking them to our model of what the ought to sell for.”). I disagree with Darienhacker because I’m just not an efficient markets believer. I guess the obvious play is to short two year notes and buy 6-month bills since we seem to have some segmentation going on…
only fools (Orange County) do this voodoo “mark to market” business… and look what happen to them. i hear of these subprime investors who just held their subprime at par and are up on the year… question: would you rather be down 40% or up 8%, i’ll pick the latter.