Want to bet against U.S. Treasurys? These ETFs make the trade easy for investors

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The KEB Hana Bank headquarters in Seoul, South Korea, Thursday, Jan. 11, 2018. Reports that China may slow its purchase of U.S. government bonds weighed on investor sentiment. (AP Photo/Ahn Young-joon)

What could halt this latest stock market rally?

We asked investors what fears could challenge the bull. The list included a monetary policy misstep, extreme valuations, or some unforeseen exogenous shock. Yet, none of these seem imminent.

“The Fed’s dual mandate approach, balanced and cautious, fosters economic conditions that achieve both stable prices and maximum sustainable employment. With unemployment at 4.1 percent and inflation at 2.13 percent, a scenario of monetary policy missteps is unlikely. Additionally, global central banks remain accommodative,” so there is little risk of runaway inflation or aggressive rate hikes, said Elaina Spilove of Cohen Spilove Leib Robinson Investment Group, part of UBS institutional consulting in Philadelphia.

Other risks they see include the failure of so-called Trumponomics, rising protectionism, the Fed ending the cycle, European politics, Middle East escalation and an ensuring oil supply shock, a credit crunch in China, and instability in North Korea.

Stock valuations are slightly above the long-term average, trading at 20.7 times trailing earnings, Spilove added, “but they are consistent with the solid economic backdrop. As for some unexpected shock, “we track the likelihood of key market risks across the globe,” she noted.

Fixed income is one area, however, where investors have grown cautious. For those of you who own bond funds, be aware that as interest rates rise, bond yields can rise also, and the underlying prices of the bonds fall.

DoubleLine Fund founder and bond guru Jeff Gundlach last week made a call that U.S. Treasurys are entering a bear market, noting the yield on the 10-year Treasury jumped to its highest level since 2014, as central banks move away from financial crisis-era policies. The 10-year Treasury yield, which moves inversely to the bond price, rose to over 2.6 percent last week. The bond market also reacted to reports that China, long one of America’s largest Treasury buyers, may be scaling back its holdings (which China quickly denied).

Still, can retail investors actually bet against U.S. Treasurys? Sure, using ETFs, or exchange-traded funds. These ETFs aren’t really suitable as long-term holdings, but instead are useful for quick trades or for hedging, say, if you own a large bond portfolio.

Guy LeBas, chief fixed income strategy at Janney Montgomery Scott, notes there are about 19 inverse bond ETFs, and among the most popular are TMV, TBT, and PST. But they are not cheap, with expense ratios between 0.90 percent and 1.00 percent.

Direxion Daily 20-Year Treasury Bear 3X (TMV) is an exchange-traded fund that moves up in price when the U.S. Treasury 20+Years Bond Index drops in value. It’s a way to “short,” or bet against, longer-maturity U.S. Treasury bonds. Beware: it uses three times leverage, or borrowed money, to triple up your wager.

The ProShares UltraShort 20+ Year Treasury ETF (TBT) is similar, and aims to return twice (200 percent) the inverse (opposite) of the daily performance of the Bloomberg Barclays Capital US Treasury 20+ Year Treasury Bond Index. ProShares UltraShort 7-10 Year Treasury ETF (PST) also corresponds to twice (200 percent) the inverse (opposite) of the daily performance of U.S. Treasury 7-10 Year Bond Index.

“These are for trades only. If the market for cryptocurrency has taught us anything, it’s that investors value volatility,” LeBas said.

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Bitcoin’s run-up to a price well above $10,000 has outpaced almost every other previous investment bubble, according to a Yale/Bloomberg analysis. (Credit: Bloomberg)

Speaking of Bitcoin, the cryptocurrency has risen so fast in price that this bubble actually beat out other historical bubbles, including tulips (in the 1600s) and the Nasdaq in the dot-com era. An analysis by Yale and Bloomberg shows the blockchain-based virtual currency has risen nearly 60 times in starting price in just under three years.

Free financial literacy workshop

Widener University’s School of Business Administration will hold a free financial literacy workshop on Thursday from 5 to 7:30 p.m., which is open to the public.

Joseph Hargadon, the department head for accounting and information management at Widener, will teach about how to make financial decisions, including reducing debt and the benefits of compound interest.

The workshop will take place in Quick Center Room 108, 14th and Walnut Streets, Chester.

The workshop is free and dinner will be provided, but the number of participants is limited. Those who are interested should register by Jan. 20 and contact Assistant Dean Jessica Hoopes at 610-499-4304 or jfhoopes@widener.edu.

“We are excited in the Widener University School of Business Administration to help community members who want to avoid financial pitfalls and learn to be money smart,” Hoopes said.

The event is sponsored by the School of Business Administration, Chester Rotary Club, Widener University Rotaract Club, UPS, and Franklin Mint Credit Union.