Conventional Wisdom Isn't Always Wisdom

The consensus on the Street (both Wall and Main) is that Treasuries are among the worst asset classes to park funds in the current environment. The overwhelming premise is obvious, the value of interest rate securities moves lower as interest rates increase and the Fed is in the trenches of liquidity tightening. Further, interest rates remain at historically low levels (at least in the middle and long end of the curves) and are assumed to have "nowhere to go but higher." Accordingly, the masses are complacently bearish in the Treasury complex, and in the futures market space most traders are holding net short positions. In fact, speculators in the 10-year note futures contract are currently shorter than they have ever been before!

Simply put, if most market participants have the same opinion and have already acted in the futures markets or in their investment portfolio allocation, selling in the Treasury complex should dry up. Further, those with speculative short positions in futures (or maybe the (TLT) ) will eventually need to buy back their holdings to get flat the market. Regardless of fundamental arguments otherwise, the unwinding of this historically overcrowded trade could lead to the type of rally that makes the bears wish they had never heard of the practice of short selling....267 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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