Expect the Unexpected

. July 30, 2011
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Things that are widely known don't always move markets in obvious ways. With the U.S. Treasury close to defaulting, Treasury bonds have gone up in price (see chart above). You would have made money over the past six months owning government debt.

It's counter-intuitive, but it's what happened.

Short-term news can get you in trouble, since you are going to be one of the last people to find out about it. Most successful traders ignore the news and focus on strategies that have shown some evidence of working.

Individual investors also tend to do worse than the market because they under-diversify and over-trade. Jumping in and trying to trade based on instinct generally doesn't work.

There are good strategies, but you're not likely to find them without doing the appropriate research. Start here.


Norman said...

Best explanation I've heard: the market is not actually expecting default, but it is now expecting a huge reduction in supply. Even if the market is expecting default, its expectation about lack of available bonds has radically overwhelmed the default expectation.

ReformedTrader said...

Thanks for sharing. Yes, the market seems to not have priced in a default. If there's fear, it seems to be the kind of fear that drives people to purchase Treasuries because there are greater risks elsewhere in the system.

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