Is It Finally Time to Short Treasuries with ETFs?
March 21st 2012 at 2:00pm by Tom Lydon
Investors who bought U.S. Treasury ETFs for safety have been jarred by their steep pullback this month as yields move higher. Some aggressive traders are wondering if it’s finally time to short Treasuries with inverse ETFs.
Bond exchange traded funds have been popular as investors used them as a safe haven and for an income stream. Yet Treasury bonds may not be the answer for investors anymore.
“With the current yield at an all-time low, fixed income is not as attractive as it was a year ago. The current low yields are signaling that investors are worried about the United States entering another recession and more problems in Europe. The Federal Reserve’s plan to maintain the federal-funds rate near 0% until 2014 will keep rates low across the entire yield curve for the foreseeable future,” Timothy Strauts for Morningstar wrote in a recent analysis. [Shorting Treasury Bonds With ETFs]
Investors are beginning to pile into equities and out of the Treasury market. Since the Federal Reserve has become the largest buyer of U.S .government debt, the market has been set up to get stuck, reports Erin Avedlund for the Philadelphia Inquirer. The Fed can not raise interest rates without increasing the nations own interest rate and debt. [ETF Chart of the Day: Short ETFs for Treasuries]
Some analysts are even suggesting that it’s time to start selling Treasury bonds and start getting back into equity markets. For those that are anticipating a downward spiral for Treasury markets, there are ETFs that short this area of the market such as ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT).
A fund such as this can be a bet that the Treasury market may start falling, however, this kind of investment must be monitored daily and can be volatile. [Short ETFs for Rising Interest Rates]
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.