It's too hot and crowded now

Early this months, I told you that the decades' long super bull market for bonds has finally ended and we are getting into a bearish bond market with increasing long term interest rate. As I said, the 10 year Treasury yield, which was about 2.75% then, would likely go up to 3% this year and if so, this would not be great for the stock market. It is a timely call as interest rates indeed have kept going up and bond prices kept going down but the speed of the interest rate increase is certainly beyond my expectation. Just within 2 weeks, the 10 year Treasury yield has gone up as high as 2.91%. You may think this is a tiny move but for long term bond yield, this is enormous within such a short period of time. Actually this fast interest rate increase has really made stock investors nervous and has definitely a lot to do with the recent stock market plunge. All the sudden, virtually all the bond traders have become extremely bearish, betting for further decline of bonds or increase of interests. As a long term trend, I'm all for it since we are definitely going into a higher interest rate era moving forward. But nothing goes a straight line, either up or down. The bearish trade for bonds are simply too hot and crowded for me for now and I think we can expect some significant retreat of the short trades on bonds. As I said, I played TBT for shorting long term bonds, which have already given me good profits within a short period of time. But I have sold all long positions with TBT and now holding TBT puts to expect meaningful decline of it due to strengthening of long term bonds in the next few weeks. It is a contrarian trade for short term and I think the winning odds are high for me against the herd again!


But betting for a decrease of interest rate/rising of bond prices is just a short term speculation. Nothing has changed my mind about the higher interest rates in the long run. I'm convinced we will get to 3% for the 10 year interest this year and a lot higher next year and years ahead. If you don't know how high interest rates will impact on the stocks, just think about what has happened in the past two weeks: merely a fast move towards 3% has already tanked the market. So what will happen when the rate goes to 4%, 5% or even higher in the years ahead? It won't be pretty!!