What goes down must eventually come back up, right? The rock-bottom interest rates we’ve been enjoying for the last few years aren’t going to last forever. They won’t be as necessary to help goad an economic recovery, so as the picture brightens both here and around the world, they’ll naturally have to go back up. [9 ETFs for Bullish and Bearish Dollar Sentiment.]

The catch for you, dear investors, is that bond prices share an inverse relationship with interest rates. As rates rise, the price of bonds fall. If you’re holding bonds with the intent to sell them sooner rather than later, this will impact you in the form of lost principal. This is why many investors take a “laddered” approach to bond investing and buy bonds of varying maturities, in order to mitigate interest rate risk. [It's Time to Approach Bond ETFs Differently.]

For more stories about the U.S. dollar, visit our currency ETF category.

• PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP)

• iShares Barclays 1-3 Year Treasury Bond (NYSEArca: SHY): Short-term bonds tend to come in favor as interest rates rise and hit long-term bond prices

• United States Oil (NYSEArca: USO): When interest rates rise, the dollar tends to weaken, which puts various commodities priced in dollars – such as oil – back in favor

• ProShares UltraShort 20+ Treasury (NYSEArca: TBT) and Direxion Daily 30-Year Treasury Bear 3x (NYSEArca: TMV): Long-term Treasuries will be hit the hardest when interest rates are hiked. For the risk-hungry among you, consider shorting long-term Treasuries. Before doing so, though, understand how these funds work! [All About Leveraged and Inverse ETFs.]

For full disclosure, Tom Lydon’s clients own shares of SHY.

Rising interest rates and the threat of inflation has bond investors, for the most part, fleeing the scene.  John Spence for MarketWatch says the following types of funds are letting investors bet against the longer-dated Treasury shares, which could get hit as the Federal Reserve hikes rates in the future:

• ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT)

• Direxion Daily 30-Year Treasury Bear 3x (NYSEArca: TMV)

• ProShares UltraShort 7-10 Year Treasury (NYSEArca: PST)

Last week, the Federal Reserve upped the emergency loan rates they charge banks. While these rate hikes don’t affect consumers or corporations, the move did put investors on alert for an eventual reality: someday, record low rates are going to go back up. When they do, billions that have been stashed in Treasuries during the financial crisis could be lost. Enter short Treasury ETFs. [Leveraged ETFs Are Popping Up in Many Varieties.]

Rate hikes could be far off, though. Federal Reserve Chairman Ben Bernanke reiterated yesterday that the central bank wouldn’t raise them until the economy was on firmer ground.

Leveraged and inverse ETFs are not for everyone. They’re meant to reflect the daily moves of the market; to hold them longer is to risk them veering further away from their benchmarks. This effect is heightened in volatile markets. [Everything You Need to Know About Leveraged and Inverse ETFs.]

For more stories about leveraged ETFs, visit our long-short ETF category.

Some investors seemed to think so last week. Leveraged ETFs that short U.S. Treasury bonds saw inflows after yields popped up, says John Spence for The Wall Street Journal.

The returns for U.S. Treasuries are starting to normalize and even start to increase, writes Chris Fernandez for Seeking Alpha. Warren Buffet recently stated that the bubble forming in the U.S. Treasuries may even rival that of the housing bubble before the collapse.

As the U.S. government increases spending, the government will have to borrow by issuing Treasuries with maturities ranging from 1 to 30 years. Treasuries are now declining about 20% from previous highs, and yields are over 4%. If buyers of Treasuries don’t want any more debt then the government will have to entice them with higher yields, or lowering Treasury prices.

The current yields have yet to reach historic lows and the government is probably not finished with getting as much money out of outside sources as it can. But yields will probably have to be increased if inflation sets in and repayments could be payed out in depreciated dollars.

There are also talks of the U.S.’s AAA credit rating being downgraded. If this were to happen then investors would demand higher yields for the riskier debt, which would push Treasury prices down.

When the U.S. government eventually raises interest rates, Treasury prices will fall and yields will rise. More recently, the U.S. has auctioned Treasuries and demand was low. Treasury prices may continue to fall as the government tries to sell more Treasuries that borrowers won’t be too enthusiastically investing in.

How can someone capitalize on decreasing Treasury prices? There are some short Treasury ETFs available but be sure that you understand the risks involved in investing in leveraged funds before you part take in them.

• Ultrashort Lehman 20+Year Treasury Proshares (TBT): up 51.4% year-to-date

• Direxion Daily 30 Year Treasury Bear 3X Shares (TMV): up 43.6% in the last month

Max Chen contributed to this article.

These new funds allow investors to go three times long or short on 10-year and 30-year Treasury bonds, essentially making a bet on rates. The indexes give 300%  the daily performance, or 300% the inverse, of the NYSE Current 10- and 30-year U.S. Treasury indexes.

The new funds are known as:

• Direxion Daily 10-Yr Treasury Bull 3x Shrs (TYD)
  
• Direxion Daily 30-Yr Treasury Bull 3x Shrs (TMF)
  
• Direxion Daily 10-Yr Treasury Bear 3x Shrs (TYO)
  
• Direxion Daily 30-Yr Treasury Bear 3x Shrs (TMV)

The current rate on a 10-year bond is 2.76%; on a 30-year, it’s 3.66%. Treasuries were mixed after Wednesday, and longer-term bonds saw their yields rise slightly, reports Nick Godt for MarketWatch. Signs of improvement in the economy, however slight, tend to decrease the appeal of U.S. government debt.

Adding to pressure on the debt is that foreigners sold another $97 billion in net U.S. assets in February, the second consecutive decline following a $146.9 billion drop in January.

Also, Direxion will be changing the name of all of its ETFs to inclue the word “daily,” to better reflect that these funds seek daily investment goals and should be used only as short-term trading vehicles. Leveraged ETFs have become more popular, and along with that has come attention. Leveraged and short ETF providers have done a great job of educating investors about these tools.