Update: Straddled on the treasuries' fence
Adding more protection underneath as treasuries are moving up
In Straddled on the treasuries' fence, I introduced a bi-directional trade on treasuries.
The cost was zero and the maximum risk is $600 per contract.
This was the idea in short. Many funds sold treasuries short to buy high yield (“junk”) bonds as I explained in The #1 Chart that I'm Watching. But at some point, if treasuries continue to appreciate, these positions would need to be closed.
And this could create a violent upward spike in treasuries and downward in junk bonds. As you can see in the chart below, the long high yield, short treasuries trade (HYG/TLT) continues to deteriorate for now.
But it would not surprise me to see it recover, at least temporarily. And that is why the trade is bi-directional. We seem to be at a pivot point.
Keep reading with a 7-day free trial
Subscribe to Economic Defense to keep reading this post and get 7 days of free access to the full post archives.