“Inflation is the catalyst that may very well bring interest rates up. There are a handful of things that influence interest rates. Among them are the economy, inflation, prime rate movements and even the stock market. Focusing on inflation and the prime rate, consider the following. If inflation occurs, the Federal Reserve will undoubtedly make changes to the Federal Funds Rate and the Federal Discount Rate in order to minimize the amount of inflation. These two rates, in turn, impact the prime rate at which lending institutions lend money. As the prime rates go up so will interest rates since they are tied to the prime rate. For this and other reasons, interest rates will go up on various investment vehicles such as savings accounts and CDs. As these yields go up, so will the yield on treasuries since they are in competition with one another,” Karl Reports From Guru Focus.
Karl goes on to say, “The ProShares UltraShort 20+ Year Treasury ETF (NYSE:TBT) is an interesting prospect for those that expect higher inflation and higher interest rates. This article argues that higher interest rates are coming and that in turn higher interest rates will occur. With higher interest rates, the yield of long term treasuries will increase and in turn, the markets values of these treasuries will drop. This will cause the market value of this ETF to increase. It is an Exchange Traded Fund that shorts US Treasuries with maturities greater than 20 years. TBT does the exact opposite of what the iShares Lehman 20+ Year Treasury ETF (NYSE:TLT) does.”
“Because of the current public debt to GDP ratio, GDP will need to be artificially increased through inflation. By doing this, GDP will be impacted directly. Due to forces such as the impact of inflation on lending institutions and prime rate concerns, interest rates are bound to go up which will impact the yields expected by investors of low risk investment vehicles such as CDs. This expectation of higher yields will push long term treasury prices down on the free market in order for investors to attain higher yields on them. Which makes the idea of shorting long term US Treasuries attractive. Therefore, consider going long the ProShares UltraShort 20+ Year Treasury ETF (NYSE:TBT),” Karl Reports.
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Here are some more details on the 2 ETFs mentioned above:
The investment (TBT) seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Barclays Capital 20+ Year U.S. Treasury index. The fund normally invests at least 80% of assets to investments that, in combination, have economic characteristics that are inverse to those of the index. It also typically invests in taking positions in financial instruments, including derivatives that should have similar daily return characteristics as twice the inverse of the index. The fund is nondiversified.
|TOP 10 HOLDINGS ( 4.75% OF TOTAL ASSETS)|
The investment (TLT) seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays Capital U.S. 20+ Year Treasury Bond index. The fund generally invests at least 90% of assets in the bonds of the underlying index and at least 95% of assets in U.S. government. It may also invest up to 10% of assets in U.S. government bonds not included in the underlying index. The fund also may invest up to 5% of assets in repurchase agreements collateralized by U.S. government obligations and in cash and cash equivalents.
|TOP 10 HOLDINGS ( 93.65% OF TOTAL ASSETS)|