03/24/2011
The latest global market turmoil has prompted a flight-to-quality from the most volatile of global equity markets into long-term Treasury bonds. Bond prices have surged since mid-February, and there’s been a concomitant decline in Treasury bond yields ever since.
As you can see by the chart here of the 10 Year Treasury Note Yield, yields have come down substantially from the highs they reached in February. The yield on the 10-year note now has fallen well below its 50-day moving average.
The decline in yields has been good for those seeking to lower their mortgage rates and/or borrow money, and that’s been a positive for some segments of the market. However, I don’t think that the lower-yield party is likely to last very much longer.
In fact, I think that once we see a settling down of the equity markets and the return of bullish sentiment, I’m expecting to see a flight of capital away from Treasury bonds back into equities -- and that will cause yields to spike once again.
For those who are prepared for this imminent rise in interest rates, you’ll have a great chance to make some money. That’s because there are several exchange-traded funds (ETFs) that allow you to bet on what I think surely will be a spike in yields. Two of the best are the single-beta ProShares Short 20+ Year Treasury (TBF), and the two-beta ProShares UltraShort 20+ Year Treasury (TBT). Both of these investments thrive when bond prices are falling, i.e., when bond yields (interest rates) rise.
We’ve used the two-beta TBT to bank big short-term profits from the rising rate trend in my ETF Trader service, so if you are looking for innovative ways to make money when rates are on the move, then I invite you to check us out.