Do This To Profit When Interest Rates Spike

The prospect of another $1.9 trillion in stimulus has markets rallying from last week’s turbulence, and the selling in Treasuries has cooled off a bit, but the forces that led to last week’s dual bond– and stock-market tantrums haven’t necessarily gone away.  

I’m not here to burst anyone’s bubble; I’m cheering hard for this rally and even harder for economic recovery.  

But there’s no getting around the fact that that same economic recovery also has investors nervous about the return of the “I-word,” with all that that entails for markets. I’ll show you why in a minute. 

There’s a chance that over the next few days and weeks, we could see Treasury yields move up again.  

But there’s no need to worry. I’ve got two specific moves in mind. The best part is, even if yields don’t jump as dramatically as they did last week, this should still pay off nicely… 

Historical Stock, Securities, Certificates, Fund, Bonds

Image Source: Pixabay

How Rates Got So Low in the First Place

The Fed Funds rate gets all the attention because it’s the short-term interbank rate with which the Fed, frankly, manipulates the Treasury’s borrowing cost for 10-year loans. But make no mistake: The 10-year Treasury yield is the bond market’s benchmark. It’s the number the pros watch.  

On March 2, 2019, long before any of us had heard the words “novel coronavirus,” the yield on the 10-year Treasury bond, or “note,” or “paper,” if you prefer, was 2.62%. 

By this time last year, on March 2, 2020, as COVID-19 was upending life and demolishing markets, yields had fallen to 0.74%. Bonds were about the only thing that wasn’t selling off.  

When markets seized up with pandemic panic, the Fed jumped into action, unleashing a veritable flood of liquidity measure, such that by March 9 of that year, 10-year yields had fallen, briefly, as low as 0.318% – levels not seen since the darkest days of World War II. 

Of course, as we all know, by March 24, 2020, equities, buoyed by all-time low rates and a concomitant flood of new, mobile-app based retail investors, took off like a shot. Not long after, and faster than most imagined, economic prints began to look better as we emerged from the “instant recession.”  

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Disclaimer: Any performance results described herein are not based on actual trading of securities but are instead based on a hypothetical trading account which entered and exited the suggested ...

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