Treasuries Craze And Window Dressing

I want to propose one more explanation to current bubble in Treasuries. It was noted that current prices of Treasuries can be explained by financial panic, possibility of Great Depression 2.0 or combination of both. I also noted here that between August and October dollar and Treasuries were both going up and after mid-November dollar is more or less stable, when Treasuries shot up sharply.

One theory which can explain current growth of Treasuries (which means drop of yields) is window dressing. Funds which lost big on commodity and stock markets this year need to show that they are currently in safe investments. What can be safer than Treasuries! And total size of those funds is enormous. There are trillions of dollars in various pension, endowment and sovereign wealth funds. They were managed badly, invested a lot of money in commodities in the last and first half of this year, lost huge amounts and now desperate to show investors that their money is safe. And because this money was invested in dollar denominated assets before, funds don't need to buy dollars, hence dollar stabilization.

I still don't discount financial panic and Great Depression 2.0 (or Great Recession). But I want to play on window dressing. The easiest way to do it for individual investor is to go short iShares Lehman 20+ Year Treasury Bond (TLT) or, better yet, go long UltraShort Lehman 20+ Treasury ProShares (TBT). I think to buy some TBT shares into year end and sell in the first half of January. There is some risk still, so due diligence still applies: buying small positions on the way down and selling at the first sign that trade might go wrong.

Full disclosure: at the time of publication author had no positions in TBT, TLT or any other stocks related to treasuries. Positions can change any time.