Higher interest rates are coming. And there’s no stopping them.

That’s the message from the bond market this week, where prices have been weakening and yields rising in anticipation of a hawkish Federal Reserve policy statement next Wednesday. The QE3 stimulus is set to end in October. And the timing and pace of short-term interest rates, based on a recent San Francisco Federal Reserve Bank research paper, is likely to be sooner and more aggressive than investors are ready for.

On Friday, with another batch of solid economic data — including an in-line report on retail sales — the cheap-money junkies are slowly realizing there isn’t really enough justification for the Fed to hold back on its tightening campaign any longer.

As a result, yield-sensitive stocks are getting hammered while bond prices are drifting lower.

For investors, the breaking of the low-rate status quo is presenting new opportunities for profit. Here are three trading ideas for the prospect of higher interest rates:

Short Long-Term Treasury Bonds

Click to Enlarge The most direct play here is to move against long-term U.S. Treasury bonds, which by virtue of their low rates and high duration exposure are very sensitive to any changes in Fed policy and the resultant increase in interest rates.

You can see this in the way the iShares Barclays 20+ Year Treasury Bond (TLT) has scythed below its lower Bollinger Band — a sign of extreme downside extension — in a way that hasn’t been seen since November (as shown above).

There are a number of leveraged, inverse ETFs that provide easy short exposure to T-bonds, including the ProShares UltraShort 20+ Year Treasury (TBT) or the more aggressive Direxion 3x Treasury Bear (TMV), which is up 3.3% since I recommended it to my Edge clients on Wednesday.

Short Real Estate Stocks

Click to Enlarge Among the stocks that were getting hit hardest Friday were real estate stocks — specifically real estate investment trusts (REITs) that are, by nature, yield-dependent. Because of their high dividends, they are valued similarly to high-yield bonds.

As interest rates rise, REIT prices tend to fall. That’s because the “spread” — or the yield difference between T-bonds and REITs — to compensate investors for the higher credit risk of REITs over T-bonds needs to be maintained.

You can see this in the way stocks like MFA Financial (MFA) are falling down and out of year-long uptrends.

You could short individual issues or add leveraged short exposure via ETFs like the ProShares UltraShort Real Estate (SRS) or the Direxion Daily Real Estate Bear 3X Shares (DRV).

Short Homebuilders

Click to Enlarge Another sector that will get hit as interest rates drift higher will be housing — namely, homebuilding stocks like Toll Brothers (TOL) and D.R. Horton (DHI), which are attractive short-side candidates.

Specifically, I am recommending Edge Pro clients add put option positions against PulteGroup (PHM) and Lennar (LEN).

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters, as well as Mirhaydari Capital Management, a registered investment advisory firm.