Shorting US Treasury Bonds

Last Thursday I shorted 30 year US Treasury bonds futures which trade on the Chicago Board of Trade. I sold the December contract for $118.28. This is only a short-term trade based on my belief that the plan for governments around the world to directly recapitalize banks, guarantee interbank lending, and provide a blanket guarantee on all deposits would be enough to prevent a total financial system meltdown and restore confidence in banks.

There are several ways to play this from going long equities to buying Euros. The trade I feel most comfortable with is to bet on rising interest rates on government debt securities which have plummeted due to a flight quality. The 30 year treasury bond looks the most overvalued because the government will have to print a lot of money in the future to pay for all these bailouts. However, other than a short term correction in Treasury bonds I expect its price to remain firm as headline inflation begins to drop dramatically over the next year leading the market to fear deflation. I will probably close out the position at around $112.

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