Better Places To Sell

I am a big huge Kodiak grizzly of a bond bear. It’s probably my number one conviction call. I believe, over time, long rates throughout the world will go higher – a lot of higher.

Yet the trader in me questions the wisdom of waking up this morning and grabbing a stack of pink tickets to smash bids in US bonds.

Let’s look at the headlines hitting the tape.

Let’s recap. We have two of the world’s most recognized bond managers making some really bearish comments about US fixed income. Do you think Gross and Gundlach still have some selling to do? Not a chance. If anything, they are leaning short duration (at least versus their benchmark) and talking their book.

And even more importantly, we have China stating they may halt their purchase of US bonds. Again, if China had selling to do, would they jawbone down the price of US treasuries ahead of their sales? Do you think they are that naive? I will take the other side of that trade.

Now you might argue China didn’t say they would sell US Treasuries, but merely stated they might slow down (or stop) future purchases. The withdrawal of a big buyer would definitely weigh heavily on prices. Yet I believe China does not make these sorts of statements without some ulterior motive.

Here is some color from Bloomberg’s reporting:

Officials reviewing China’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries, according to people familiar with the matter.

China holds the world’s largest foreign-exchange reserves, at $3.1 trillion, and regularly assesses its strategy for investing them. It isn’t clear whether the recommendations of the officials have been adopted.

The market for U.S. government bonds is becoming less attractive relative to other assets, and trade tensions with the U.S. may provide a reason to slow or stop buying American debt, the thinking of these officials goes, according to the people, who asked not to be named as they’re not allowed to discuss the matter publicly. China’s State Administration of Foreign Exchange didn’t immediately reply to a fax seeking comment on the matter.