The Idea of Shorting Bonds

By on February 23, 2010

Sean Riskowitz at has written about the notion of shorting global bonds.

Sentiment around the world has started to turn on bonds and resulted in a growing number of well-informed individuals calling for investors to short global bonds. Shorting is the act of borrowing a security from a broker with the promise to return it at a later date. The investor making the short hopes to buy to sell it in the market for a high price and buy it back at a lower price. He is essentially predicting a decline in the price of the security.

On the topic of global bonds, well-known commentators such as Marc Faber have called shorting global bonds the short of the century. Nassim Taleb, author of the excellent book The Black Swan, and a one-time trader himself, said that “every single human should short US Treasury bonds”. Another investor worth listening to is Jim Rogers, famous for starting the Quantum Fund with George Soros. He said he is shorting bonds (and buying sugar, interestingly enough).

SMA Comment: Sentiment was universally negative on bonds early this year. Shorting bonds might seem a wise move, but it definitely has its risks if the economy weakens again.


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