The Rough Seas of Bond Trading

Cramer lists the reasons why he's venturing out into the bond market.
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How rough do these bonds want to make it for us? I just bought some 30-year U.S. government paper, and I feel like I just got snared by some crummy .com. I was down five ticks before the trade could be booked!

What's going on? Could the refunding (10-year in particular) be causing all of the weakness?

This bond market is heavy, so heavy that when you go in, it smells a buyer and whacks you before you can get your buy order out of your mouth.

So why buy?

Because I am not fazed by the technicals. Because I believe bonds have gotten more interesting at this level than they have in some time. Because I see no inflation, even though growth remains high. Because I think I can make money.

First, let me say that when I buy bonds, I fully expect that my first buy won't be my last. I use pyramid buying in bonds, my first trade small, a couple million (Look, it's bonds, you gotta trade 'em in millions if you want to be in the game. These aren't slots; there is no $2 table), and then I get bigger as they go down. When bonds get to 91 offered, I want my full position. I think they get there by the refunding. At that point, I will come close to doubling down, with the idea of a recovery back to 5.625, a nifty capital gain.

Of course, the bond market will dominate the action in stocks and will continue to put a lid on things until they pop. In that backdrop, the cyclicals thrive and growth falters, so we will probably stay on that script until we see the whites of the 6% eyes on the long bond.

So, I am keeping my cyclicals on as a balance to my bond position. That way, I feel I can win with either hand.

Random musings

:

Barry Diller

made two bets with

Lycos

(LCOS)

. One was that going Hollywood would dazzle Netizens. And two was that the Net would collapse and his bid would look terrific by comparison. Wrong on both counts.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Lycos and 30-year bonds, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

letters@thestreet.com.