Since “green shoots” of economic recovery first emerged in 2009, pundits have been predicting doom-n-gloom for bond prices. Many assumed that record low interest rates meant that… sooner or later… they’d have to soar. After all, how else would the Fed control the inflation associated with a weakened U.S. dollar?
Of course, none of the rate predictions came to pass. Even the downgrade to U.S. treasuries didn’t send rates skyrocketing.
Instead, abject revulsion for European sovereign debt has pushed U.S. bond yields to ridiculously low levels. And with the Federal Reserve focused on deflation through the purchase of treasury bonds in QE1, QE2 and “Operation Twist,” bond prices have kept on trucking.
So where does that leave ETF investors who remain bearish, or who are becoming bearish, on fixed income? Fortunately, there are assets that should thrive if rates are rising, including floating-rate loans via iShares Floating Rate (FLOT) and inflation-protected securities via PIMCO 1-5 Year TIPS (STPZ).
Traders can go for the short-selling gusto through ProShares UltraShort 20+ U.S. Treasury (TBT). However, since it is a daily inverse tracker, traders will need to have a plan for taking profits or minimizing losses.