Do This To Profit When Interest Rates Spike

The pendulum could easily swing back the other way, though. The good news is, there are some really easy, inexpensive moves to make when that happens.  

How to Profit When Yields Creep Up

I happen to believe that, if the specter of inflation is out there, we’re not likely to run into it for a few quarters at least.  

When rates rise, think of the ProShares UltraShort 20+ Year Treasury ETF (NYSEArca: TBT), which rises as rates rise and bond prices fall. TBT is a leveraged exchange-traded fund, which means it rises three times as high as bond prices fall; this makes it much better for short-term trading than long-term holding. The ETF hit a high of $21.22 last week, on Feb. 25. It opened quite a bit lower yesterday morning, below $19.65, but went up to nearly $20.50 by midday; folks who were trading that the right way, with options, would’ve had a good day’s haul.  

It’s possible to play the 10-year Treasury even more directly, with the iShares 20+ Year Treasury Bond ETF (Nasdaq: TLT). It goes down when rates go up, so, in a rising-rate environment, it makes good sense to trade puts on it. 

Stocks may have been up yesterday; optimism won out over inflation fears for the day. But I’m betting we’re going to see rates rise before they come down much, so TLT and TBT make good sense right now.  

Profit potential at a time like this is all about being “in position,” so that you can be where the opportunities will be.  

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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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