Super-Committee Failure's Fall-Out: 3 Plays On Rising 10-Year Yields

 |  Includes: DTYS, TBT, TYO
by: HiddenLevers

Sifiso Takirambudde + Raj Udeshi

Most have us have now come to terms with the fact that Washington D.C. is truly broken. 200 point swings have dare I say become the new norm. If Congress is involved, International Markets have come to expect the worst. We know the outcome of this failure will be harsh cuts to the DOD budget. Everyone is talking about major defense contractors such as Boeing Co. (NYSE:BA), Lockheed Martin (NYSE:LMT) and the Northrop Grumman (NYSE:NOC) and will face losses from cuts in defense. What if you could calculate the beta between the DOD budget data and every single defense contractor? Would that be worth something, to calculate the regression between the economic lever and each security, like you calculate S&P beta, just to see which ones are the most vulnerable? Well, that’s exactly what HiddenLevers has done.

'Chart created using Hidden Levers app'

We think there should be a larger discussion as to how this situation will affect treasuries. Curiously enough, amidst the current deficit debate of 2011, 10y Treasuries have fared significantly better than during pre-recession levels. This strength occurred even though there was a general consensus that bonds were a ticking time bomb. This notion helped push Bill Gross's expectations that the Bond Market would have tanked by now. Well, Mr. Gross has admitted he was wrong, which we little guys appreciate, but now he has another opportunity to be right. The million dollar question is back on the table – As faith in the Congress wanes, and the integrity of American debt once again comes into question, what happens to 10y UST yields?

Well using that same regression method, we can discover the investments that are most highly correlated with 10y yields, or inversely too. So no matter what your economic viewpoint, you can now get the best of that view point.

On the chance that Mr. Gross was right but early, (notice that he is more silent this time round) here are some plays that could be enticing as yields on treasuries rise:

'Chart created using Hidden Levers app'

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.