Bill Gross of PIMCO is considered the guru of the bond market. Last month, Gross sold his long position in the US Treasury market. This month Gross is selling short US Treasuries. To give a fair and balanced account of Gross’s action, Bill Gross is a macro investor. This mean his position is not a short-term trade like so many of the hedge funds you hear about. Gross’s position is based on longer-term trends that he sees developing. This trade – selling and going short US Treasuries, is not a new conversation. Many professional traders are calling rising interest rate trade, the trade of the decade. LOTM agrees. Interest rates in the United States are artificially low because of the financial crisis of 2008. It is natural to expect the Federal Reserve to raise interest rates after dropping them to lower than normal levels during the crisis.
What can we expect along with rising interest rates?
For one, we can expect the stock market to continue to rise for the time being. Rising interest rates in the beginning is simply bringing back balance–back to what a “normal” rate is. Rising interest rates is a positive signal that we have returned to normal.
Rising interest rates can be expected to put a damper on inflation – gold, oil and food prices have had a great rally. Higher interest rates are competition to commodities and therefore slow down or stop the commodity rally.
LOTM has mentioned various ETF’s in past blogs — you can check the archive of past headers and see our comments. As a longer term and passive way to participate in rising interest rates, you can buy the ProShares Ultra Short 20 year plus US Treasury ETF (TBT) $38.07.