The Fiscal Cliff: Dodged….

Tonight our congress temporarily resolved the the fiscal cliff. While the deal may not have been the best deal that was to be had, it was a compromise and equity markets should rally heavily tomorrow. This will not be due to the deal that was struck, but more so due to the international economic strength that has been shown recently almost across the board. Most notably: Japan is engaging on an extensive easing program, US continues to ease and provide stimulus to the markets and China has picked back up.

One position I currently have which has been performing better then expected and should continue to do so is my Short Treasury Bond, Long Corporate and High Yield Bond thesis. This pair trade is speculating that the large spread between US treasury bond rates and corporate/high yield bond rates will begin to conform to historic standards. This position has been taken by using leveraged short treasury ETF’s including tickers TMV and TBT. The other side of this pairs trade has been composed by purchasing some high yield and investment graded corporate bonds through ETF’s including tickers JNK and VCLT.

All in all I am extremely satisfied with the performance of this trade and will plan on holding this one for at least the next few months as the process of closing this historically large spread may take some time. In fact, this may a be a position I will hold on to for over a year, but it all depends on how the market performs.

By the way, Happy New Year!

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