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How to make money on the growth of government bond yields?

Hello everyone!

One of the main potential risks for the global economy is a faster rise in inflation relative to expectations.

The fears are not without foundation, since there is a direct relationship:

expectations (in fact) of a rise in inflation → an increase in the yield curve for bonds → and this, in turn, at some point may lead to a tightening of the monetary policy of world central banks (rate hike, curtailment of monetary incentives) → sale of risky assets

The potential rise in inflation is already clearly visible through the growth of US government bond yields, especially for bonds with a long duration (maturity in 10 years or more)

treasury 30 year bond yield

Also, as confirmation that the growth of bond yields is likely to continue, indicates the copper / gold ratio, which grows during inflation / inflation expectations (orange line)

Agree, I think each of you has already noticed how smartly the price tags in grocery stores, on cars, real estate, durable goods, etc. are quickly rearranged.

That is, inflation is already manifesting itself in all its glory., from historically high marks for risky assets (crypt, stock indices, commodity growth) to goods on the shelves in the store. The reason is simple – an unprecedented increase in the money supply in the world (let’s say hello to the world central banks), which simply could not be reflected without a trace. In fact, the monetary authorities averted the crisis with short-term measures (they stupidly flooded everything with money), but at the same time, the problems in the economy have not gone away fundamentally, they are only temporarily disguised, in the future they will only manifest themselves more strongly and will be even more “painful”, but there are the Central Bank has no more sleeves …

Perhaps the lyrics are enough for this, let’s move on to the practical part… Growth in treasury bonds yields can be realized through the purchase of the following ETFs, which are traded on the American stock market:

– Direxion Daily 20-Year Treasury Bear 3x Shares (ticker TMV, presented in the graph below) – ETF for riskier investors, which is displayed by the index of 20-year US Treasury bonds in reverse order, but on a triple scale, that is, if the yields of 20-years grow by 1% (meaning, if now the yield of 20-years about 2%, then + 1% change is 2.02%), then the ETF will add 3%, respectively, but when yields rise to 3% from the current 2% (this is 3/2 = 50%), then ETF + 150%

How to make money on the growth of government bond yields?

– ProShares UltraShort 20+ Year Treasury (ticker TBT) – ETF for investors with moderate risk, everything is the same as for TMV, only on a double scale

– ProShares Short 20+ Year Treasury (ticker TBF) – ETF for investors with conservative risk level, scale 1 to 1

The main nuance is that for the implementation of this idea it is necessary have the status of a qualified investor, that is, meet one of the following requirements:

* You have 6 million rubles (for example, on deposits)

* You own shares, bonds or other securities in the amount of 6 million rubles or more (it is enough to be the holder of assets for the specified amount for only one day, even taking into account the borrowed funds of the broker, OFZs with the nearest maturity are perfect for this)

* You have worked for at least 2 years in a company that has the status of a professional participant in the securities market,
or from 3 years – in an organization that does not have this status, but traded in securities or derivatives. Work must be directly related to securities

* During the last year, you made at least 1 transaction per month and at least 10 – per quarter. The transaction turnover must be at least 6 million rubles in total
In the meantime, there is no need to worry about it. ”
* You have higher economic education from an accredited university or a certificate of a financial market specialist (FFMS), auditor, insurance actuary; Certified by Chartered Financial Analyst (CFA), Certified International Investment Analyst (CIIA) or Financial Risk Manager (FRM)


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