Short Puts on 20+ year Treasuries at ~ 3.19% yield

The yield curve is likely to keep flattening from here. I believe there is limited upside to the 30y yield. Recent economic data (CPI and retail sales) don’t support treasuries to sell off. Only external factors, perhaps like the ECB reducing QE, would be a concern. The front end of the curve will be based on Fed Expectations. Any unpriced fed hike reckons a flatter yield, affecting the long end of the curve, as weak data will limit higher yields. Below you can see how the forwards curve is expecting a flatter yield curve and how USA economic readings have been lower than expected.

With 30yr yields going down I would suggest being exposed to duration. I still think there is more room to the downside and a reasonable trade would be selling puts on the TLT — iShares 20+ Year Treasury Bond ETF (maturities greater than 20 years). Currently, September (3 months), strike 126 puts are around 2.0 on the bid or around 1.60bps of notional. On an annualized basis that is 3.19%. At those yields one should be long 30y treasuries, so 3.19% currently a good catch. IMO this is a reasonable trade in the current environment.

Yours truly,