PortableAlpha

How About This for a Hedge Combo: TBT and TLT

Well, as of market close today, the short long-treasuries theory has seen yields on the 30 year drop by about 20.5%, while this hedge is down only 15% (since the close on May 22).

I still don't think that this is a perfect hedge, though. TBT is a mess because they don't actually bother shorting the t-bonds. ProShares uses derivatives to track the movement of the yields, to get double the daily rate. And whenever you're talking about double the daily price movement, things get sticky.

But, the charts do say that the mirror is working pretty well on the whole. I do wish you had sourced the 8% price movement per 100 bps, though. But if that holds, and rates move to 6% (a 230 bps move to a place where rates have not been since June of 2000), then you'd get about 18.5% (ignoring dividends).

And moving to 6% wouldn't be overnight, either. So 18% over maybe 3 years. So you'd be lucky to beat inflation by 150 bps a year or so.

This is a nice theoretical exercise, but you'd do better in TIPS.