On The Rebound: This Short Term Play Could Double Your Money
Dear Wealth Watch Reader,
Fear of rising interest rates and inflation have turned investor sentiment on bonds from bad, to worse, to downright awful.
Today I explain why this actually makes a really good short-term investment opportunity for you.
Read on below…
Bonds are Beaten to a Pulp — Why They’re a Short-term Buy!
The recent backup in interest rates amid rising fears of inflation is what spooked the stock market recently.
But last week, comments from Federal Reserve officials gave both stocks and bonds a boost.
From a traders perspective bonds may be a great bet right now. At least over the next three to six months.
You can see in the chart just how much yields on the benchmark 10-Year U.S. Treasury bond have climbed; moving from 1.5% in mid-2016 to a high of nearly 3% last week.
And interest rates have jumped 50% higher since last September, when the 10-year yield was around 2%.
That’s a very painful move for fixed-income investors, because higher yields mean plunging bond prices.
In fact, that one point move in Treasury yields from 2% to 3% cost investors 10% of the value of 10-year Treasury bonds in their portfolios.
But this stunning rise in yields, and fall in bond prices seems overdone to me. It’s too much too soon. And I see bonds as a decent trade near term.
You see, investor sentiment on bonds has traveled from bad, to worse to totally awful in recent weeks.
According to the latest fund manager survey by Merrill Lynch, institutional investors cut their investment in bonds to the lowest level in twenty years!
That’s extreme pessimism.
From a contrarian point of view it means bonds are unloved, oversold, and probably due for a sizeable rebound near term.
This goes back to the cyclical nature of markets that I have written about for some time now.
What goes up (yields in this case), must come back down.
Don’t get me wrong, bonds still remain a dangerous place for long-term investors.
The average yield for the 10-Year Treasury bond is well over 6% in the long run, meaning yields could still move a lot higher, potentially creating a lot more pain for bond investors.
But I’m only talking about a three to six month trade here to profit from the oversold bond market and the likely rebound in bond prices.
Here’s how to take advantage:
The ProShares Ultra 20+ Year Treasury Bond ETF (NYSE: UBT) is a leveraged ETF that aims to deliver twice the upside potential from Treasury bond price.
If Treasury bonds rebound 5%, you could earn a 10% profit.
Bonds sold off nearly 10% since December. Too much too soon.
If they only regain half of the value lost, that would be about a 5% gain for Treasuries, but a potential 10% profit for UBT.
A 10% rally in bonds, could net you a 20% gain.
You get the idea.
Remember, this strategy is best implemented as a short-term trade only.
Don’t just set it and forget it.
Give yourself a three to six month time frame and aim for 10%-to-20% in potential gains.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
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