Are Long Dated Treasuries "Risk" Assets?

There was a brief moment yesterday where it felt like treasuries had been added to the "risk" asset class. They were dropping and dragged stocks down with them. Its all back to normal right now with futures up and bond prices down, but overnight, there was another spell where stocks and bonds were moving in tandem. It is an almost universally accepted investment thesis is that QE2, among other things, will push investors out of bonds into stocks. But, it seems like people are long bonds and stocks. Bonds to flip to the Fed via POMO, and stocks to hold as retail finally jumps on the bandwagon. Owning bonds to sell to the Fed has been an unmitigated disaster since the announcement. The old 10 year is down 5 points since QE2 was officially announced. That's almost 2 years of "income" with a 2 5/8% coupon.

It feels like yesterday's "compromise" on taxes and unemployment insurance actually spooked the market and for the first time added some element of "credit" to treasury yields. With the government clearly unwilling to make any tough decisions, the risk to the treasury market is growing. The Fed will buy, but normal people may not. We are in no risk of becoming a Spain or Italy any time soon, but I think we are drifting away from the safety Germany seems to provide. With the Fed, ECB, IMF, and government all trying to support global equity and credit markets, its hard to be short, but we need to carefully watch the performance of long dated treasuries. If they become a "risk" asset, we could see a very large move down in stocks as no one is set up for that trade. Even the economic bears are not set up for a sell-off in both. From a trading standpoint, I would trade off the moves in treasuries. The stock market is still very excited about the shift from bonds to stocks, heck, they are almost giddy with relief that its finally occurring. But so far, it is the professionals anticipating this move rather than an actual shift to stocks, and it will take the stock market a few hours or days to catch up. The price action on the open seems to suggest shorting stocks right now.