If You Were Convinced ?

Steve, you are f_cking hilarious.

Star,

You need to be clear on what interest rates you are talking about. But if you were convinced that all rates would move higher there are plenty of investments that would allow you to profit from it directly. You could short bonds; 10 year, 5year, and 2 year notes; Fed funds, Eurodollars, or Muni Bonds, I am sure there are some that I am missing and these only apply to US interest rates. The easiest way to do this is with futures contracts. Just short them all, if you are right you could make a bundle.

5yr
 
Quote from OneHipCat:

Roach is total loser
More...

:) You are completely right, but you know that as an economist, he doesn t have a stop loss!
I just wanted to point out that on interest rates you can pick 10 top economists, far mor intelligent than I am, and they will have 10 different views...
 
too much "smart" money in here for me... out of my league here... i'm not good enough to even read this thread

idiots




But if you truly want to short interest rates, you might buy long term puts on:
zb (futures)
ief (eft)
tlt (eft)

rrpix (short bonds mutual fund, but expensive and doesn't track well.)

ief puts are likely the most reasonable of the above. dont bet the farm. the powers that be have a strong incentive in keeping rates low.
 
Thanks to those with serious and helpful replies...and yes, I meant US interest rates...

I appreciate the sound advice!
 
For a longer term position on a directional play you can use the following:

RYJUX (rydex short long bond )
RRPIX (profunds rising rate oppty inv 30y)
RTPIX (profunds rising rate oppty inv 10y)

RRPIX and RYJUX are essentially equivalent.

There's a cost of carry with these - about 4% a year.
Estimate that about a 1% move in long term 30 year interest rate will result in a 20% profit or loss.

I bailed on my RYJUX position recently at flat when the 30yr wasn't behaving right. I'm waiting on february's treasury auction to see when it might be good to jump back in.

Shorting the 30yr is tough. I suspect it might hang out around 4-4.5 for quite a while until it starts to head higher. For all I know, it could be there for 6 months, a year, more. And all the while I'll be paying carry. Pass. When this thing starts to move decidedly, after the first, earliest stages, it will be identifiable. Something will happen, and then it will be time to jump in. Now, exactly what that something is, I have no idea. But I'll just hang out and wait, and earn carry instead of paying it.
 
This is a really complicated question and depends on why interest rates are going higher. Notice that interest rates have already been going higher on the short end, and yet the long end of the curve has stayed mostly where it has been for at least a year. So you have to understand the yield curve.

All that said, the short answer is that I would not go long or short anything by itself because that is nearly impossible to predict.

A spread on the other hand might not be if you understand what play your are making. Some suggestions, none of which say anything about what I believe is going to happen and it is not a recommendation on my part in any way:

0) Buy a three month Treasure Bill.
1) Go short ZF or ZT, long ZB (yield curve inverts (more) - little or no inflation)
2) Go long TIPs, sell ZF
3) Sell Corp Debt, go long ZN
4) Sell REITs, buy Banks
5) Sell short housing stocks

Many of these have ETFs that allow them to be played with much less risk (because futures are highly leveraged) and up front capital. For example, TLT.

Many of these are plays on the curve. It is really important that you understand convexity, otherwise any yield curve play is a dangerous game.

If you can, use options. As an investor, always buy option premium - that way you can sleep at night.

I really urge you to seek professional help from someone that does this for a living.

nitro
 
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