Long TBT, short Treasuries

I made my first trade today, and I will note that this is more of a speculation than an investment.
TBT is the symbol for "PROSHARES ULTRASHORT LEHMAN 20 PLUS YEAR TREASURY".

UPDATE: This article popped up a couple hours after my trade :-D
TREASURIES-US 30-year bond trades over 3 points lower in price

UPDATE: This article (Cover story of Barron's), which came out the day after I bought this ETF, is about the bubble in US Treasuries.
Get Out Now!


Here's a deconstruction of what this is:

• Proshares: Proshares is the company that manages the various index funds
• Ultrashort: This ETF is 2x short the index that it follows, meaning that a 1% drop in the index results in this ETF rising 2%
• Lehman 20+ Year Treasury: The index that this ETF tracks is the Lehman index that tracks the price of US Treasury Bonds that have a maturity of over 20 years

So what I purchased is an ETF that goes up as the price of Treasuries goes down. The 2x leverage allows me to get a higher gain (or loss) on the price movement of US Treasuries. Now why did I make this trade? First I'll have to explain a bit about the special place that Treasuries hold in the global securities markets.

When an institution wants to invest its capital in the safest possible securities, they go to Treasuries. The United States Treasury is rated AAA and it is pretty much assumed that there is no possible way that the United States could default on its debt [Note: Some day this might not be true. If it happens, it will be far worse than anything that has happened to date]. So as the stock markets crumble, corporate defaults rise, homeowners default on their homes, and consumer spending declines, the safest place to put your money is in Treasuries.

However, Treasuries are bonds, and therefore they have interest rates. The 'yield' is the interest rate that equates the present price of the bond with the sum of the discounted future value of the bond as it pays out to whoever owns it (There are subtleties that I will not go into). There is an inverse relationship between yield and price. As price of the bond goes up, the yield decreases. However, yield (theoretically) should not go below zero. If the yield was below zero, that would mean you would purchase a bond at $100, and when it pays you back once it matures, you get paid back less than $100. That's not the way it's supposed to work.

However, the demand for Treasuries has been far higher than anyone has ever expected. The shortest-maturity T-bills are 3-months, and their yield is now around 0%, and in intraday trading it has supposedly even gone negative. This is because their price has been bid higher and higher as more and more investors move towards safe assets. These low interest rates are unprecedented, and my opinion is that it is not possible for these yields to go much lower. If yields can't go lower, that means prices can't get any higher, so I'm shorting the Treasuries on the bet that prices for Treasuries can't go anywhere but DOWN from here. In trading-speak, there's no upside risk to Treasury prices because yields can't really decrease from here. The US government paying 2.8% for a 30-year loan? I don't think so...