Wednesday, March 23, 2016

Bond Yield a predictor

This graph tells a hard story; bond yields 30y UST Bonds are on there way down again:

This is not the first drop, and looking at the yield compression between the 30y and 2y you get the following graph; and if you overlay the US Financial index...well the trend is not great for owning financial stocks, just saying

This diagram would seem to indicate that the trend is ugly for financials.

BTW my discussion about the the perfect hedge that turns out to be a disaster... Peabody is apparently thinking bankruptcy; on Wednesday it filed an SEC notice that it was at risk of filing for bankruptcy.  Well my friend's hedge fund could not hold till the end, they had to liquidate their position at a massive loss.

Turns out that the killer for my friend was the excessive amount of short positioning (with the same trade -- long the debt short equity) that led to a massive squeeze on the stock and an unwind of the debt position -- the impact price on equity doubled and price on debt fell to nothing...

Crowed trades are trades for morons (sorry Steve)


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