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Thursday, May 15, 2014 11:53 PM


An Opportunity to Bet Against Treasuries?


I have been a long-end treasury bull this year for two reasons.

  1. I felt the economy would not perform anywhere close to the bullish consensus GDP forecasts
  2. Yields had soared based on expectations of hikes that I still feel are unlikely.

Curiously, Michael Novogratz, principal at Fortress Investment Group LLC claims Macro’s Miss Was Shunning Long Treasuries
Michael Novogratz, principal at Fortress Investment Group LLC (FIG), said most macro hedge-fund managers missed the biggest trade this year -- buying long-dated U.S. Treasuries -- and now there’s an opportunity to bet against the debt.

“There’s only one great trade in macro this year we missed, most macro missed -- buying duration in the Treasury market,” Novogratz said at the SkyBridge Alternatives Conference in Las Vegas today. “Yields are getting to an area where being long doesn’t make sense and having a sizeable short makes sense.”

Long-dated U.S. Treasuries have gained 11.9 percent this year, beating stocks and junk bonds, as the U.S. economic recovery showed signs of slowing.

Bears are sticking to their call that bond prices are going to collapse even as recent evidence points to the opposite. The short trade remains popular with individuals and professional speculators who believe they will profit as the Federal Reserve pulls back on monetary stimulus.

Novogratz is co-chief investment officer of Fortress’s macro funds, which seek to profit from broad economic trends by trading everything from bonds to commodities. Fortress’s main macro fund, which invests across products and geographies, lost 6.3 percent this year through April 30, according to a regulatory filing.
Opportunity Knocks?

Novogratz says there is an "an opportunity to bet against the debt".

Why?

I can easily understand why one would not want to be long treasuries after this rally. Shorting treasuries is another matter unless one thinks the economy is poised to take off and there is no need for risk aversion.

If the economy is slowing more than consensus targets or if a flight-to-safety trade in conjunction with falling equities is baked in the cake (I think both are likely), one would want to be long or on the sidelines, not short.

There are always opportunities to do the wrong thing! Shorting treasuries at this juncture is likely one of them.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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