OK, here's what I think is going to happen. The Fed will continue to cut rates. The short term rates will go down further. Eventually the low interest rates, deficit spending and the trade balance will result in other governments increasingly growing adverse to taking more dollars. This will result in long term rates going up (bond supply and demand) and hence the long term bonds will go down.

So here's what I've done and what I still want to do:

Go long on short term treasury bonds.

Short long term treasury bonds.

I've reduced my duration on the bonds I hold to short term (2.1 years). I want to buy options (puts with leverage) on longer term treasuries. I have to figure out how to buy the puts (or short) on treasuries, since I've never done this. Anyone got any suggestions on how to do this????

Now I've got the plan, I just need to figure out how to execute.

I posted this over on Market Insight also.