Medium-Term and Long-Term US Treasuries Are Quite Attractive At Current Levels [updated]

I've been following the treasuries for quite some time, but haven't positioned myself yet. Technically and sentiment wise, they have been a buy since late January, and now, with the disasters in Japan, they are becoming fundamentally more interesting.

For those who do not trade futures or treasuries directly:

  • IEF, the iShares 7-10 Year Treasury ETF is yielding about 3.3%
  • TLT, the iShares 20+ Year Treasuries ETF is yielding about 4.2% 

The later one has the most room for capital gains, but this comes with a bit bigger downside risk as well.

[Update:] Here's a contrarian indicator that also shows bullish signs for Treasuries:
March 10 (Bloomberg) -- Bill Gross has dumped all Treasuries from the world’s biggest mutual fund, Warren Buffett is shifting to shorter-term debt, and Swiss Reinsurance Co. is boosting equities and corporate bonds.

Some of the biggest private investors in the bond market, from fund managers to insurers and pensions, are preparing for an end to the three-decade Treasury rally, as interest rates near zero and unprecedented spending by the U.S. government and the central bank threaten to fuel inflation. Their strategies range from reducing the longest-dated holdings and shifting to higher-yielding corporate debt, to investing in stocks, commodities, non-U.S. bonds and even holding cash.

U.S. government bonds are not a safe haven,” Jim Rogers, the global investor who predicted the 2007-2009 housing-market crash, said in a telephone interview from Singapore. “I cannot conceive of lending money to the U.S. government for 30 years.”

Pacific Investment Management Co. said yesterday that Gross, who runs the $237 billion Pimco Total Return Fund, eliminated government-related debt from his flagship fund last month as the U.S. projected record budget deficits. Gross, who has overseen the expansion of Pimco into a $1.2 trillion bond shop over four decades, predicted a year ago that “bonds have seen their best days.” Last month, he said Treasuries may have to be “exorcised” from model portfolios.
Mutual funds, which collectively represent the largest private owners of U.S. debt, cut their holdings by 17 percent to $638 billion as of June 30 from the end of 2008, according to federal government data. 
BlackRock Inc., the world’s biggest money manager, has moved to shorter-duration securities because of the potential for interest-rate swings and is “underweight” Treasuries relative to benchmark indexes, Rick Rieder, chief investment officer of fundamental fixed income at the New York-based firm, wrote in a February investment commentary.
“China’s faith in the Fed broke a few years ago,” said Xie, now an independent economist based in Shanghai. “China used to be enamored of people like Greenspan and Bob Rubin even though at that time the dollar was coming down. QE2 destroyed whatever faith was left.”
“The legitimate corollary question is: Who will buy Treasuries when the Fed doesn’t?” Gross wrote.

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