# Lifestyles & Discussion > Personal Prosperity >  shorting U.S. bonds

## jy006m

Jim Rogers has mentioned several times that he is shorting U.S. treasuries. What does he mean by this and how can we do the same?

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## ArchPaul

> Jim Rogers has mentioned several times that he is shorting U.S. treasuries. What does he mean by this and how can we do the same?


I believe TBT is one way.

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## Cowlesy

TLT is an ETF that is long the twenty-year bond I believe, so you could sell it short.

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## jy006m

What exactly is the concept? Betting on a rise in the treasury interest rates? If the interest rate rises, the value of the bond decreases?

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## Cowlesy

> What exactly is the concept? Betting on a rise in the treasury interest rates? If the interest rate rises, the value of the bond decreases?


correct.

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## jy006m

I'm trying to short sell TBT on Etrade and it won't let me do it. Are there are other ways?

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## Johnnybags

> I'm trying to short sell TBT on Etrade and it won't let me do it. Are there are other ways?


you want to go long it!

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## Cowlesy

> I'm trying to short sell TBT on Etrade and it won't let me do it. Are there are other ways?


It is already tracking the inverse of the 20 year bond, so you would want to go LONG TBT.

If the 20 yr yield goes higher, TBT will increase in value as the value of the bond decreases.

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## jy006m

Ahh ok. That explains the drop from $70 to the current $39. What is the price tied to?

Also, so if I long it, does this mean I won't have to do the stuff that short sellers normally have to do? like have a margin account that pays interest and having to cover the short?

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## Jordan

> Also, so if I long it, does this mean I won't have to do the stuff that short sellers normally have to do? like have a margin account that pays interest and having to cover the short?


Nope, no margin, no loans, no interest.

That's why ETFs are all the rage.

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## jy006m

So the 20 year treasury is at 3.22% right now? How do I calculate what TBT would be if say it went to 2.5% or 4% or 5%, etc?

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## icon124

Can someone please explain why you would want to short U.S. bonds?  I understand the public may lose confidence and stop investing, which would raise rates, but do you not factor in that the Government will find a way into the market...keeping the rates low?

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## danberkeley

> Can someone please explain why you would want to short U.S. bonds?  I understand the public may lose confidence and stop investing, which would raise rates, but do you not factor in that the Government will find a way into the market...keeping the rates low?


Because it would have made you a lot of money up until 10 months ago.

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## ILUVRP

I don't know who will keep buying our debt with the interest rates so low....

China takes the dollars its mfr companies receive from us , give the mfr's  China currency , buy UNITED STATES  T- bill's and notes....How long will they be happy to receive such a low interest rate ? 

Is  anyone on the board buying US t-bill's or notes ? I think not....

I think interest rates are very close to the bottom.....

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## Jordan

> Can someone please explain why you would want to short U.S. bonds?  I understand the public may lose confidence and stop investing, which would raise rates, but do you not factor in that the Government will find a way into the market...keeping the rates low?


No one is going to be willing to buy treasury bonds at 2%, its insane to even think about.  The dollar just had an excellent run up against the Euro and GBP but its just about over, when the dollar drops in value so does the value of our treasuries to foreigners.  

Foreigners made bank on Treasuries in the past few months as the USD gained in value, but its over.  When the USD starts dropping the last thing you want to own is treasury bonds, especially at 2% per year.

With TBT and gold you can create the perfect hedge.  If no one buys treasuries, the dollar drops TBT and gold rises dramatically.  If the FED hops in to buy treasuries, TBT drops while gold soars.  You can only earn with this setup, there is no way to lose any real amount of money.

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## icon124

> No one is going to be willing to buy treasury bonds at 2%, its insane to even think about.  The dollar just had an excellent run up against the Euro and GBP but its just about over, when the dollar drops in value so does the value of our treasuries to foreigners.  
> 
> Foreigners made bank on Treasuries in the past few months as the USD gained in value, but its over.  When the USD starts dropping the last thing you want to own is treasury bonds, especially at 2% per year.
> 
> With TBT and gold you can create the perfect hedge.  If no one buys treasuries, the dollar drops TBT and gold rises dramatically.  If the FED hops in to buy treasuries, TBT drops while gold soars.  You can only earn with this setup, *there is no way to lose any real amount of money*.


You're assuming the dollar loses enough value.  If it doesn't then there is plenty to lose.




> Because it would have made you a lot of money up until 10 months ago.


Okay...but I'm looking into the future and not 10 months ago.

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## Jordan

> You're assuming the dollar loses enough value.  If it doesn't then there is plenty to lose.


First consider that the US has to sell $2 Trillion worth of Treasuries this year to fund its operations.  Also, 40% of privately held US debt hits the auction block this year.   There are going to be tons of treasuries and little money to buy them with.

Look at these two scenarios again:

Fed buys Treasuries, treasury rates drop like a rock and so does the dollar.
Private investors buy Treasuries, rates go up.  Dollar about the same.

I don't really care what you do. I'm not here to convince you to make the trade, but I'll be the first one back in this thread in 6 months to tell you how bad you missed out.

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## danberkeley

> You're assuming the dollar loses enough value.  If it doesn't then there is plenty to lose.
> 
> 
> 
> Okay...but I'm looking into the future and not 10 months ago.


Because ten years from now, it might have made you lots of money.

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## Josh_LA

> correct.


didn't it just go down to negative a few weeks ago?

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## clb09

Check this out:

http://www.portfolio.com/views/blogs...iness-of-bonds

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## ArchPaul

> Check this out:
> 
> http://www.portfolio.com/views/blogs...iness-of-bonds


And then some

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## surf

> So the 20 year treasury is at 3.22% right now? How do I calculate what TBT would be if say it went to 2.5% or 4% or 5%, etc?


you can use duration of the 20 year bond as an approximate measure for price changes given yield changes as follows:

duration of a 20-year bond is approximately 15 years. lets say the 20-year bond is priced at par (100) currently. the calculation for the price change uses the duration in years (15 here) times the market change in interest rates. Thus, if the 20-year bond yield rises to 5.22%, the price change would be equal to (15 * 2%) or roughly 30% and equal to 70 (vs 100 today). If the yield rose 1% to 4.22%, the price would decline 15 to 85.

for your calc's if the yield went to 2.5% (dropped .72), the price would rise from 100 to 110.8; if yields rose to 4%, the price would drop to 88.3; at 5% the price would drop 73.3.

These are rough calculations (on the duration side), but i hope you get the drift and i hope this helps.

edit: i have absolutely no idea what this does to TBT prices as i'm not familiar with TBT, and i hope that if the information i've provided is not correct, someone will correct this.

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## ArchPaul

Also look at PST, its a 7-10 year treasury short

Recommends shorting in January

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## jy006m

I had not pulled the trigger on TBT, but now I am thinking of buying some call options on it. When would the expiry date be?

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## clb09

> I had not pulled the trigger on TBT, but now I am thinking of buying some call options on it. When would the expiry date be?


What is the advantage of call options vs. simply buying the etf?

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## jy006m

I can buy much more. At $41 per share, I might only be able to buy 50 shares, but at a $0.80 contract price, I could buy 2000+.

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## pa33

If TBT tracks the inverse of the "Lehman Brothers 20+ Year U.S. Treasury index", and Lehman is now bankrupt, is this fund even safe to own long-term? Is that index still around?

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## danberkeley

> If TBT tracks the inverse of the "Lehman Brothers 20+ Year U.S. Treasury index", and Lehman is now bankrupt, is this fund even safe to own long-term? Is that index still around?


It's an index. The ETN is not issued by Lehman but it follows and index that Lehman set up.

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## HOLLYWOOD

> It's an index. The ETN is not issued by Lehman but it follows and index that Lehman set up.



GET OUT NOW!

Barrons too, is reporting what Peter Schiff, Rogers, and  Others have been saying this week!

Here's the link on the BOND BUBBLE readied to go NUCLEAR!

*http://online.barrons.com/article/SB...rrons&ru=yahoo*

*The bubble in Treasuries looks ready to pop, sending prices on government debt sharply lower. But just about every other corner of the bond market beckons -- and could provide competitive returns with stocks, even if the equity markets have a strong 2009. (Video)*

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## danberkeley

> GET OUT NOW!
> 
> Barrows is reporting what Peter Schiff, Rogers, and  Others have been saying this week!
> 
> Here; the link on the BOND BUBBLE readied to go NUCLEAR!
> 
> *http://online.barrons.com/article/SB...rrons&ru=yahoo*
> 
> *The bubble in Treasuries looks ready to pop, sending prices on government debt sharply lower. But just about every other corner of the bond market beckons -- and could provide competitive returns with stocks, even if the equity markets have a strong 2009. (Video)*


 Get out of what?

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## jy006m

So does anyone know if I buy TBTAP, which is a call option on TBT with a strike price of 42, when the expiry date is?

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## clb09

Slightly off topic but...

Where can I find some good info on buying call options on TBT or GLD?

Can I do it through a discount brokerage? 

Thanks.

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## danberkeley

> So does anyone know if I buy TBTAP, which is a call option on TBT with a strike price of 42, when the expiry date is?


the 17th of this month. last day of trading is the 16th.

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## danberkeley

> Slightly off topic but...
> 
> Where can I find some good info on buying call options on TBT or GLD?
> 
> Can I do it through a discount brokerage? 
> 
> Thanks.


You can do it through eTrade.

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## jy006m

> the 17th of this month. last day of trading is the 16th.


Damnit, that sucks. I thought it would be more like a few years. In that case, if I only have one week for the bubble to burst, then the call option is pretty worthless.

Do all options have an expiry date after a month?

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## icon124

> You can do it through eTrade.


I heard you mention that you trade before...are you a day trader?  And what software do you use to monitor your stocks?

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## danberkeley

> I heard you mention that you trade before...are you a day trader?  And what software do you use to monitor your stocks?


Beginning trader. I;ve been practicing on Investopedia, but have recently started to trade with real money on eTrade. I've learned a lot but I also have lot to learn.

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## pa33

Does anyone know if EE series savings bonds are a part of this "bond bubble" problem? Holders of EE series bonds normally receive a fixed interest rate so its unlikely they would collapse right? Unless the govt defaulted on them?

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## danberkeley

> Does anyone know if EE series savings bonds are a part of this "bond bubble" problem? Holders of EE series bonds normally receive a fixed interest rate so its unlikely they would collapse right? Unless the govt defaulted on them?


Theoritically, you will get your money back because they government can simply print the money to pay you back and, theoritically, the dollar would be worthless if the government had to resort to such practices.

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## Dunbar

Be careful with leveraged ETF's, the volatility can kill you (you're selling volatility short with these funds.) They are fine as short term plays but no as long term investments. These funds track the daily change in the particular asset. For example with oil an ultrashort would do the following:

Buy $100 worth of ETF with oil at $40/bl
Oil increases to $44/bl, a 10% increases X 2 = 20% ETF drop to $80
Oil decreases back to $40/bl, a 9% drop x 2 = 18% ETF only increases to $94.40

Now imagine it does that five more times, which it certainly can in a sideways market, and you'd be killed. I think I read if someone had bought the double short of oil in January of 2008 they would be *down* 40% at the end of the year. For a longer term position it's much better to stick to the unleveraged fund or short the corresponding double long ETF. I can't figure out why all these talking heads on TV are recommending TBT.

Article that explains this:

http://blog.adamnash.com/2009/01/03/...letriple-etfs/

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## jy006m

> Be careful with leveraged ETF's, the volatility can kill you (you're selling volatility short with these funds.) They are fine as short term plays but no as long term investments. These funds track the daily change in the particular asset. For example with oil an ultrashort would do the following:
> 
> Buy $100 worth of ETF with oil at $40/bl
> Oil increases to $44/bl, a 10% increases X 2 = 20% ETF drop to $80
> Oil decreases back to $40/bl, a 9% drop x 2 = 18% ETF only increases to $94.40
> 
> Now imagine it does that five more times, which it certainly can in a sideways market, and you'd be killed. I think I read if someone had bought the double short of oil in January of 2008 they would be *down* 40% at the end of the year. For a longer term position it's much better to stick to the unleveraged fund or short the corresponding double long ETF. I can't figure out why all these talking heads on TV are recommending TBT.
> 
> Article that explains this:
> ...



Interesting, so it's the doubling that's the problem. So how do I short the double long ETF?

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## jy006m

bump, still trying to figure out the best way to short these bonds

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## ArchPaul

> bump, still trying to figure out the best way to short these bonds


The "pattern" I noticed is it seems to be inverse the dollar index ...

DXY:IND 1 year chart

TBT 1yr chart


I've watched both on daily charts a few times in the last couple months, and it seems to be the case.  I would guess what ever is bad for the dollar is good for tbt.
I also noticed as the Dow Jones goes down, so does TBT. My theory is people are selling out of the market. This converts to "cash", which makes the demand for dollars stronger, increasing its strength, and forces TBT down. 
But I'm no expert by any stretch. So it's not advice, just an observation.

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## icon124

> bump, still trying to figure out the best way to short these bonds


Truthfully, I really don't think you should.

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## ArchPaul

> Truthfully, I really don't think you should.


I agree.
I'd stick to trading what I know. 
I had considered it, and my plan
was going to wait until there is more huge sell offs (essentially waiting till the market exhausts itself), because I noticed tbt dives with the market, and simultaneously watch the dollar as it stays strong, then buy in tbt, as the market swings up, the dollar drops, and or foreign govts sell of treasuries. Then sell off before peaking. But that is a total gamble for me, and I could very well be totally wrong. Also, consider the govt. is going to self preserve at any cost. So they could make up a rule you can't short treasuries. Just like they put a halt to short selling last year. And any monies put in would be $#@!...

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