Tough Week, all around. Sad to say I lost money last week on the second half of Tuesday mostly.

bonds pairs trade

Seems like many traders are starting to trade short the US treasuries, however rather than betting solely on short treasuries, it might be better to take a pairs trade in which you would be betting that the yield spreads between treasuries and coporate bonds tighten.

This is a pairs trade and gets you short US treasury bonds, and long corporate/muni bonds. Betting that Treasury yields will move higher and corporate yields will move lower.

- short TLT (or long TBT)
- long LQD, PZA, AWF or HYG

So whether you believe US treasuries are due to correct downwards or not, and whether coporate and muni bonds will increase (lower yields). The spread between treasuries and corporate/muni bonds will most probably tighten, as money moves to more risky investments with higher yields. Hence the pairs trade to reduce the risk.

Disclosure: I am short TLT and long PZA.

UPDATE: watching JNK from this article.
ref: http://seekingalpha.com/article/115622-false-start-in-the-bond-market?source=yahoo

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Keith Loutit