Ok, have a question for you. I think we are both in agreement that credit risk spreads are just too narrow, in la la land. What do you think are the best trades to play a widening. There's the old TED spread, buy 13 week TBs/short EDs, and I guess one could figure out some kind of long UST, short LIBOR (considered AA rated I believe?). Or if you felt like me there were two trades in motion: wider credit risk spreads, and a wider yield curve, or even a third, wider spreads for agencies versus treasuries, one could buy a UST 2 year or even a 13 week TB, and short the 5 or 10 year agency. I'm interested in the mechanics too, to ensure people are alert to the sizes, etc. : for instance 2yr TNs trade in $200k amounts, and US agency notes in 100k, so one would have to equal the amounts.
Final question, do you think USTs are really AAA rated ? I don't <ng.> Of course no credit agency would ever downgrade them. What would it take, twin deficits of 13%, 15% of GDP, for another year, two? Is there no limit to what rating agencies would ignore? |
