The Fed took a bold move on Friday raising the discount rates. Looks like the bond bubble is about to burst. Yields are already starting to rise on deficit concerns, and could be inevitable to curb inflation.
My followers know that I have become bearish on bond prices and am looking at opportunities to short the treasuries and also watching leveraged ETFs that move inverse to treasury bond indexes (TBT, TMV).
Although the Fed indicated that the rate hike on Friday is not a precursor to raising the fed funds rate, the reality may be different. Interest rates are practically at zero and with inflation kicking in, although contained for now, the government will be forced to raise rates. With a rising deficit, the credit rating on US bonds are starting to diminish.
Treasury 10-year note yields are approaching a six week high and the United States is auctioning off a record of over $100 billion of notes and bonds this week. This will certainly put downward pressure on prices, and thus yields go up. The yield on the 10-year note rose to 3.82% on Friday, the highest level since January 11.
Also, the spread between 2-year and 10-year yields have widened according to Bloomberg. As the US extends the maturity on its debt, yields will rise even more.
My view is that interest rate hikes are inevitable. Whether your approach would be to shift your money to other asset classes such as equities or to short the treasuries, I would closely watch your fixed income portfolio.
Disclosure: None
No comments:
Post a Comment