Capitalist Pig's Hoenig: It's Time to Short Treasurys

Sunday, 21 Jul 2013 09:11 PM

By John Morgan

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Shorting bonds is the smartest bet in the financial markets at the moment, according to Jonathan Hoenig, founder of the Capitalist Pig hedge fund.

Hoenig believes the Federal Reserve has lost its ability to control the bond market, as evidenced by the rise of 10-year Treasury rates from 1.63 percent to over 2.7 percent, between May and July alone, Yahoo Breakout said.

“It took 30 years for interest rates to come down,” Hoenig said. “I think it’s going to take more than two months for them to move higher. “For my money and my investors’ money at Capitalist Pig, (a move higher in rates) is the best and most prominent trade and trend in the market right now.” Bond prices tend to go down when rates go up.

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

Hoenig already experienced the Internet, housing and gold bubbles and believes that setting target rates is very difficult, Yahoo said.

“I wouldn't be too surprised if you saw the 10-year get up to five, six, even seven percent after this move is done, surprising everyone who believes the Fed has this matter well under control."

U.S. Treasurys were steady on Thursday before Federal Reserve Chairman Ben Bernanke began testimony before Congress for a second day, and investors waited to learn whether he would give any fresh hints as to when the Fed would begin reducing its bond purchases,
Reuters reported.

Ten-year yields fell to their lowest levels in two weeks after Bernanke told a congressional
panel on Wednesday that the Fed's plans to taper its bond purchases later in 2013 are not firm, and are still dependent on the strength of the economy.

Treasury Inflation-Protected Securities (TIPS) have stabilized after being one of the worst
performers in the recent bond selloff, Reuters reported.

Investors paid a premium to buy TIPS on the expectation that Fed bond purchases would cause higher inflation. However, inflation instead is running considerably underneath the Fed's 2 percent target.

According to CNBC, the Fed believes the size of its bond holdings are stimulating the economy by holding yields down lower than they would otherwise be.

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

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