[Lurkina.n.Learnin]

Glad you brought this up. I admittedly don’t understand the bond market but I have been wondering how you would invest in a rising rate market to make money off of it.

[Starboard]

Floating rate funds or high quality short term bond funds might be something to look at but only if they are suitable for your personal objectives and tolerance for risk. Always do your own due diligence and be extremely careful about chasing yields. Make sure you understand anything you invest in and be prepared for losses should they occur. We are in a very hazardous investing environment in my opinion.

http://online.wsj.com/news/articles/SB10001424052702303393804579308490476037048

[familyop]

"Glad you brought this up. I admittedly don’t understand the bond market but I have been wondering how you would invest in a rising rate market to make money off of it."

The way is to already be in it and sell before the evacuation. In other words, I don't know, either.

[familyop]

An investor would need to either have control of a very large fund or have a very good manager.

[Attention Surplus Disorder]

One answer to your question (without addressing the wisdom or folly of doing so) would be to buy TBT, which a fund that shorts (the face value, not the interest rate of) bonds. Another answer would be to short bond futures.

I am somewhat undecided as to whether that would be a smart move or not. The chart says this has potential. However, I would state two cautions: 1: The number of folks who have destroyed themselves thinking the last 2-4 years would be an easy bond short is large. 2: If rates really rose, and rose to anything near traditional levels, most world economies would detonate. Therefore, you would fighting the largest forces on earth.

I *do* think (here's the opinion section) one could see a smallish, shorter termish, profitable trade from TBT. But it would be more in the nature of a trade and not something you leave on and walk away from. Maybe a 2-week-6-week trade. For one thing, TBT (as is TLT, the inverse) are double 2x funds, which means they can suffer from erosion over time, and 2, if the Fed and other world banks saw they were creating various forms of havoc in the financial markets, they would IMHO revert to their ZIRP policies. I do not think it is a particularly *dangerous* trade at all, I *do* think the potential profits outwieght the downside. But IMO you'd have to watch it. I trade TBT & TLT on occasion. They are tricky, but not imposdsibly so. Timing an entry I have found tough.

[Norseman]

There are some ETF’s (exchange traded funds) that move up when rates go up, but they’re not a great long-term investment because they tend to migrate down in price over time when the long-term interest rate is stable.

So, if you buy one for, say, $10,000 when long rates are 3.5%, and hold it for six months or so, and rates are still 3.5%, your $10,000 might have dropped to $9,000. However, they will really move over the period that rates are actually increasing. You just shouldn’t treat them as a long term holding. That makes them quite speculative because they only work if you catch a near-immediate rise in rates after you buy them.

The main issue to understand about bonds is that they appreciate when rates fall, and depreciate when rates rise. The reason is fairly obvious. Why would you buy a 4% bond at par (face value, usually $1,000) when rates have moved to 5%? You wouldn’t, because you could buy a 5% coupon for that same $1,000. So to induce you to buy the old 4% bond instead, the price is reduced, and reduced enough so that you’re indifferent between paying $1,000 for the 5% bond or, say $900 for the 4% bond. (That yields 4.44%, but remember it will mature at $1,000, so you’ll make another $100 on maturity.) There are bond calculators that figure the fair price to make you indifferent.

The opposite happens when rates fall. People are obviously more willing to pay up for the 5% bond if rates have fallen to 4%.