Here Comes the Rate Hikes

The pressure is now on to raise interest rates. Read this article here from Yahoo Finance. Now is the time to start thinking about our portfolios. We need to not only prepare our defensive strategy, but we need to understand how to profit from imminent interest rate increases.

The obvious choice is to short long term treasuries. When interest rates rise, all of the existing bonds fall in price due to the higher rate paid on new issues. This drives down bond prices so shorting is the obvious and easy way. There are several ETF's the allow you to take advantage of this. you can sell short the ETF TLT as it tracks the long bond. If you aren't comfortable with shorting, you can buy the ETF TBF, which is a fund that shorts the long bond for you. There are a couple of double and triple short and long ETF's, but I personally don't like the volatility and the lack of a direct correlation.

You can also buy put options or sell call options on these ETF's if you are interested in leveraging your returns. Happy trading.