Alternative Ways to Play Interest Rate Moves
I’ve written in the past about ways to play moves interest rates. Among the ETFs I’ve mentioned are:
- TBT – UltraShort 20+ Year Treasury ProShares
- LQD – iShares iBoxx $ Invest Grade Corp Bond
- HYG – iShares iBoxx $ High Yield Corporate Bond
The first one is a leveraged short play on long-term US government interest rates. The other two are standard plays on investment and high yield (junk) corporate bonds. Many of those in the latter two ETFs are probably holding them as income investments, but they can also be used in spread trade strategies with a view toward the relationship between different grades of corporate debt, or corporate debt vs. Treasuries.
The TBT, of course, is a flat out play on falling T-Note/Bond prices. Unfortunately, it is a leveraged play (2x) so it isn’t idea for a long-term play on rising interest rates.
Doing a bit of digging, though, I found the Rydex Inverse Government Long Bond Strategy (RYJUX). To quote the fund description:
The investment seeks total return, before expenses and costs, that inversely correlates to the price movements of Long Treasury bond. The fund employs as its investment strategy a program of engaging in short sales and investing to a significant extent in derivative instruments, which primarily consist of futures contracts, interest rate swaps, and options on securities and futures contracts. It invests at least 80% of net assets in financial instruments with economic characteristics that should perform opposite to fixed-income securities issued by the U.S. government. The fund is nondiversified.
This, of course, is a mutual fund rather than an ETF. That means you can’t trade it the same way you could TBT or the others. But that’s kind of the point in this particular case. If you’re looking to play a long-run rise in US interest rates, as is likely to be seen when the Fed begins unwinding its liquidity programs and raising interest rates, you don’t want something you’ll be trading in and out of on a short-term basis. This is probably something you’d look to play in a retirement (IRA, etc.) account.
Of course you could also play the futures and options markets to take a short position in Treasuries, but they have some short-coming when it comes to rolling positions forward in a long-term play.
The wider point I’d like to make here is that there are almost always ways to make a play on your expectations for the market. If you keep yourself educated about what’s available to you in terms of markets and instruments you’ll have the opportunity to be creative with your strategies, and potentially to find a better way to play for a given market move (or lack thereof).
Struggling with support & resistance and knowing what the key market levels are? Check out the Price Distribution Analysis methods I use.
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