To play the uptrend in U.S. interest rates that Bud Conrad calls the trade of the decade in his new book (see last post), he recommends:
ProFunds Rising Rates Opportunity Fund ( RRPIX) ProFunds Rising Rates Opportunity 10 Investor ( RTPIX) Rydex Inverse Government Long Bond Strategy Fund ( RYJUX)
These are U.S. mutual funds with annual expense ratios ranging from 1.4% to 1.6%. Lower annual expenses are available on several exchange-traded funds (ETFs). Three are:
UltraShort 20+ Year Treasury ProShares ( TBT) UltraShort 7-10 Year Treasury ProShares ( PST) Horizons BetaPro U.S. 30-year Bond Bear Plus ( HTDon the TSX)
These mutual funds and ETFs use derivatives to replicate daily moves in interest rates on U.S. government bonds and are, in most cases, leveraged. As Conrad warns, their performance is path dependent: if there is a great deal of volatility when rates trend upward, the funds may not follow suit to the same extent — or even not at all. Thus, they may not be appropriate for buy-and-hold investors.
Performance to datehas been rather punishing. Not only have rates been volatile but the eurozone crisis has sparked a flight to U.S. government bonds and pushed down their yields.
For active investors, perhaps a trading approach would be better. Entry would occur when there is a flight to government bonds due to financial fears (like now) and rates drop to low levels; exit would occur when there are early signs another financial panic is about to flare up.
Conrad also mentions using interest-rate futures. They avoid some of the problems associated with the funds but require a through understanding before getting too deeply into them. There are free quotes at futuresource.quote.comand more information at www.cmegroup.com.