Email of the day on the best way to benefit from a bear market in Treasuries
Comment of the Day

March 18 2014

Commentary by Eoin Treacy

Email of the day on the best way to benefit from a bear market in Treasuries

“Can you please add the iPath 10 year US-T Bear ETN (DTYS) to the library and comment on whether you think it is a good vehicle for investing long term (10 years) in any ending of the US-T bull market and subsequent bear market?”

Eoin Treacy's view

Thank you for this suggestion which has been added to the Chart Library and for this question which may be of interest to other subscribers. Taking a short position in an instrument that will necessarily have a higher yield as prices decline represents a challenge for when positions need to be rolled forward. This would suggest that the ETFs taking short positions in Treasury futures may fall victim to similar issue commodity ETFs did when they failed to take account of trading costs incurred when instruments trade in contango. 

The present low interest rate environment makes this less of a concern but assuming we are correct in the assumption that the bull market in Treasuries is over, rising yields and short-term interest rates will mean that holding short positions beyond short-term trading opportunities is likely to be expensive. 

In my view the best hedge would be in equities with records of increasing dividends above the rate of inflation. One would also have the potential for capital market appreciation.  


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