Stocks to Buy #4: ProShares UltraShort Lehman 20+ Year Treasury (TBT)
Click to Enlarge Those who missed the chance to bet on the higher bond yields have another shot. The yield on the 10-year Treasury, which has been trading in a range from 2.5% to 3% since last fall, has dropped back to the bottom of this channel with its Tuesday close of 2.69%. The 30-year bond, at 3.64%, is right at its lowest closing yield since early July.
Three key factors have underpinned this downward move in yields (and corresponding rise in prices): instability in the emerging markets, signs of slower-than-expected growth and, more recently, the conflict in the Ukraine.
This creates a new opportunity to bet against the bond market, since all three trends could prove transitory. If the troubles overseas quiet down, the “flight to quality” bid evaporates. And if the recent slowdown in the economy is indeed the result of the weather and not truly something larger, Treasuries lose another leg of support.
It’s true that not all elements of this equation may come together. However, betting against the bond market via funds such as ProShares UltraShort Lehman 20+ Year Treasury (TBT) right now provides an entry point on the low end of bond yields’ recent range. It also allows investors to do so with a defined reference point at 2.5% for the 10-year. (Keep in mind, TBT doesn’t track the 10-year note, but its longer-term target provides more leverage for the same trade.)