Monday, August 8, 2011

Closing the "Reverse LTCM" Trade (Buy Treasuries/Sell Junk) As S&P Threatens to Downgrade Corporates (TLT; JNK; HYG)

On July 26 We posted "Time to Attempt the Reverse Long Term Capital Management: Long Treasuries/Short Junk? (TLT; TMF; HYG; JNK)" with the iShares Barclays 20+ Year Treas Bond (TLT) closing at $95.65 and the SPDR Barclays Capital High Yield (JNK) closing at $40.40.
We've had the flight to safety and it's time to unwind.
TLT at $105.30 up 10.2%
JNK at $36.70 down 9.15%

Thirteen day return 19.35% unleveraged.
Your mileage may have been considerably higher (up to 200% two week return) depending on the vehicle employed.

Here's why bye-bye:
S&P To About Commence Cutting Corporates[sic]
Corporate CDS Spreads Blowing Out, Too