The list of high-profile investors and economists warning of a potential bond marketcollapse is getting longer by the week. Fortunately, for investors looking to hedge their bullish bets or profit off of a bursting bond bubble, there are several investment funds designed to rise as bond prices fall.
Last week, investor and CEO of DoubleLine Capital Jeffrey Gundlach became the latest bond guru to warn investors about an potential spike in interest rates that could cripple the bond market.
According to Gundlach, DoubleLine has been dialing back exposure to high-yield corporate bonds and emerging market debt.
“When the copper-gold ratio is rising it’s incredibly suggestive that something is going on that might be a little inflationary,” Gundlach says. “It suggests to me yields are going to break out to the upside.”
The copper-gold ratio hit its highest level of the year last week.
Bond prices and bond yields have an inverse relationship, so rising yields means falling bond values for investors.
Gundlach’s comments come just weeks after former Federal Reserve Chairman Alan Greenspan said the bond market is on the precipice of a major collapse.
“The current level of interest rates is abnormally low, and there’s only one direction in which they can go. And when they start, they will be rather rapid,” Greenspan said.
One of the most popular ways for investors to bet against long-term U.S. Treasury bondsis the ProShares Short 20+ Year Treasury Exchange-Traded Fund (ticker: TBF), which is structured to rise in value as bond prices fall.
Gundlach specifically mentions high-yield or “junk” bonds as particularly risky. The ProShares Trust ETF (SJB) is designed to deliver inverse returns to an index comprised of high-yield bonds.
While there are no major ETFs that offer inverse exposure to emerging market bonds, both Greenspan and Gundlach warned that rising interest rates will negatively impact stock prices as well. Investors wishing to place bearish bets on the U.S. stock market should consider the ProShares Short S&P 500 ETF (SH), while those looking to bet on weakness in emerging markets can buy the ProShares Short MSCI Emerging Market ETF (EUM).
Long-term investors should understand…
Click here to continue reading
Want to learn more about how to profit off the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
