High interest rates are coming but when?

Posted by Don on January 1, 2010

We have heard about inflation over the last year, but when will we see it?  I believe you already have begun seeing it in the 10 Yr. Treasury rate.  This is the same thing Gold and the other commodities have told us.  Unfortunately the bond bullies are telling the US government that they are going to require a higher yield on their money.

Don’t be so quick to jump on this bandwagon though.  As you can see from the chart below the 10 yr is going to encounter some resistance at 4%, but look at the run it has had from 3.2% to 3.8% in December.  The question is will this perception hold out.  Some people have been calling for a currency crisis (assuming the crisis is not the US) and if this happens money will flock back to the Treasury for safety probably sending rates back down.  However, this will not change the long term effect that interest rates in the long term are going up because our debt needs keep increasing.

How should you play this?  There are several ETF’s that offer to short government bonds that you can play or you could short a long government bond ETF.  Here is a list of ETF’s for government securities.

Long

TLT – iShares Barclays 20+ Year Treas Bond

EDV – Vanguard Extended Dur Trs Idx ETF

TLH – iShares Barclays 10-20 Year Treasury Bd

Short

TBT – UltraShort 20+ Year Treasury ProShares

TMV – Direxion Daily 30 Yr Trs Bear 3X Shares

TYO – Direxion Daily 10 Yr Trs Bear 3X Shares