Gekko

THE bond market has turned into a real money machine. A machine for losing money, that is. As we’ve pointed out before, the only real buyers are speculators who work with borrowed money and foreign central banks anxious to mop up their countries’ trade surpluses. The next Federal Reserve Open Market Committee meeting, on August 20, will be just before the Democratic Convention. Fortunately, none of the members are swayed by political considerations. At least two Democratic senators probably have preprinted speeches to give in the event of an increase in the Fed Funds rate.

There is probably one way to profit from the likely direction of rates—a so-called flattening trade. That means simultaneously short-selling the Treasury’s two-year note and buying the 30-year bond. The difference in interest rates between the two issues will probably narrow, which is how you’ll make your profit. A flattening curve almost invariably precedes a recession, by the way.

JD

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John Dizard

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THE bond market has turned into a real money machine. A machine for losing money, that is. As we’ve pointed out before, the only real buyers are speculators who work with borrowed money and foreign central banks anxious to mop up their countries’ trade surpluses. The next Federal Reserve Open Market Committee meeting, on August 20, will be just before the Democratic Convention. Fortunately, none of the members are swayed by political considerations. At least two Democratic senators probably have preprinted speeches to give in the event of an increase in the Fed Funds rate.

There is probably one way to profit from the likely direction of rates—a so-called flattening trade. That means simultaneously short-selling the Treasury’s two-year note and buying the 30-year bond. The difference in interest rates between the two issues will probably narrow, which is how you’ll make your profit. A flattening curve almost invariably precedes a recession, by the way.