...But government bonds are, to him, much closer to “random walks” and he thinks he can predict their direction over only a few weeks.
“Government bonds are the most likely to switch direction with very little notice,” he says. “For corporate bond spreads, there is a little more time to become wise to likely moves.”
... Prospects for treasuries
QE2 ready to set sail towards historic lows
Investors expect that some $1,200bn in new US Treasury paper will be sold in the coming year, and that could be matched by purchases from the Federal Reserve and other central banks looking to keep their currencies lower against the dollar.
Consensus in the bond market about the size of this second round of “quantitative easing” to stimulate the economy is for the Fed to buy $100bn a month of Treasuries until core inflation starts rising and/or unemployment is falling. Whether this includes current Fed purchases of $30bn a month from reinvesting proceeds from its holdings of expiring mortgages remains to be seen, say traders.
The yield on 10-year Treasury notes sits at 2.65 per cent and is down from a high of 4 per cent in April. The benchmark yield is seen as falling towards 2 per cent once QE2 starts. That would eclipse its modern low of 2.04 per cent, set in December 2008 at the height of the financial crisis.
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