Other compounding factors may exacerbate the situation as compared to 1994, such as the deficit being 9% of GDP compared to 2.6% 1994, the Federal Funds rate has been at 0% for the last 26 months, the wide spread search for yield has distorted the value of interest rates and the Fed’s hand in the bond market.
Sowanick opines that investors will liquidate their fixed-income holdings at low yields without the necessary income to offset price declines if the Fed hints at a monetary policy shift.
If you believe we are on the brink of a mass sell-off, you might want to take a look at short bond ETFs as a hedge:
- Direxion Daily 2-Year Treasury Bear 3x Shares (NYSEArca: TWOZ)
- Direxion Daily 10-Year Treasury Bear 3x Shares (NYSEArca: TYO)
- Direxion Daily 30-Year Treasury Bear 3x Shares (NYSEArca: TMV)
- iShares Barclays Short Treasury Bond Fund (NYSEArca: SHV)
- ProShares Short 20+ Year Treasury (NYSEArca: TBF)
- ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT)
For more information on the bonds related ETFs, visit our bond ETFs category.
Max Chen contributed to this article.