Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Profit from Rising Interest Rates with ETFs

Interest-Rates / Exchange Traded Funds Jun 11, 2009 - 09:49 AM GMT

By: Money_and_Markets

Interest-Rates

Best Financial Markets Analysis ArticleRon Rowland  writes: Have you looked at interest rates lately? They’re soaring! Back on March 18, the 10-year Treasury bond yield dropped as low as 2.54 percent. This week it went above 3.90 — a huge move in less than three months. The same thing is happening in all but the very shortest maturities.


The reason isn’t hard to figure out: Between bank bailouts, stimulus packages, and old-fashioned waste, our government is spending money faster than the IRS can collect it.

10-year Treaury Yields are shooting higher

Massive borrowing by the federal government is driving up rates for everyone. Mortgage rates are pointing up, too, which won’t help the housing market recover any sooner.

Fortunately, a select group of ETFs and mutual funds are designed to turn this trend in your favor. These “inverse bond funds” actually gain in value as interest rates go up! Today I’ll tell you where to find these funds and how to use them most effectively.

The Bond Market See-Saw …

First, I want to make sure you understand something important: Bond yields and bond values always move in opposite directions. Think about it like a playground see-saw. If one side goes up, the other has to go down.

So when you read that bonds are up, it is another way of saying that bond yields are down. Likewise, if you hear that bond yields are rising, you know the value of bonds is falling.

Bond prices always fall as interest rates rise.
Bond prices always fall as interest rates rise.

Rising interest rates are bad news if you own bonds because they drive down the present value of your holdings. Yes, you should still get your scheduled payments of principal and interest, but you may have missed an opportunity to make even more.

This is not a new problem, of course. Traders have always speculated on bond prices, and institutions that lend and borrow money often use the futures market to hedge their interest-rate exposure. However, the average individual investor was left out in the cold.

That is until 1995, when the Rydex mutual fund family introduced the first inverse bond fund. Originally called Rydex Juno, the name was later changed to Rydex Inverse Government Long Bond Strategy (RYJUX). RYJUX was designed to deliver the inverse price performance of the current long-term Treasury bond.

RYJUX is still available today. But now you have other options, too.

  • ProFunds Rising Rates Opportunity (RRPIX) is very similar to RYJUX but adds a 1.25X leverage factor.
  • ProFunds Rising Rates Opportunity 10 (RTPIX) moves opposite from the ten-year Treasury bond, without leverage.
  • If you are really aggressive, the Direxion 10 Year Note Bear 2.5X (DXKSX) is an inverse ten-year bond fund with 2.5X leverage.

Treasury bonds aren’t the only interest-rate game in town, of course. If you watch the high-yield “junk” bond market and think it is due for a fall, you can pick from three unleveraged inverse mutual funds:

  • Direxion High-Yield Bear (PHBRX)
  • ProFunds Access Flex Bear High Yield (AFBIX)
  • Rydex Inverse High Yield Strategy (RYIHX)

What About ETFs?

All of the funds I’ve named above are traditional mutual funds. That means they have the disadvantages I told you about in my Money and Markets column, Why ETFs Beat Mutual Funds By A Mile. For instance, you can only trade once a day and the fees tend to be high.

The good news is that now you can get inverse exposure to Treasury bonds with ETFs, too! In fact, you have four different choices:

  • ProShares UltraShort 20+ Year Treasury (TBT)
  • ProShares UltraShort 7-10 Year Treasury (PST)
  • Direxion Daily 10-Year Treasury Bear 3X (TYO)
  • Direxion Daily 30-Year Treasury Bear 3X (TMV)

All of these ETFs are leveraged: The two ProShares offerings have 2X daily leverage, while the Direxion ETFs have 3X daily leverage.

Notice this term: “Daily leverage.” It’s very important to understand that leveraged ETFs (inverse or otherwise) re-set their leverage factor every day. That means you can’t depend on getting 2X or 3X performance for periods longer than one day. It might be more or it might be less, depending what the markets do.

If you're right about the direction of interest rates, the payoff from leveraged ETFs can be huge.
If you’re right about the direction of interest rates, the payoff from leveraged ETFs can be huge.

Actually, I regard all leveraged ETFs as trading vehicles, not long-term investments. They’re a really useful tool if you have a strong indication about the market’s short-term direction.

If you’re right, you may be able to amplify your gains. If you’re wrong, you can lose your shirt very quickly. So be sure to use these ETFs with caution — and if they start to move against you, get out pronto!

Another caution with all the inverse funds, leveraged or not: Don’t count on getting any interest payments while you own these funds.

In fact, since you are effectively in a short position, you’re paying a dividend to someone else! Not a pleasant thought. But the ultimate payoff can be huge if you’re right about the interest rate trend!

Best wishes,

Ron

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules