Interest rates are at historic lows, and I’ve see countless articles suggesting that they are inevitably going to rise. Everyone knows that long-term bond funds are a terrible place for investments if interest rates rise, and the articles duly note this. But the articles never state what investments, if any, are attractive ones when rates rise. Are there investment vehicles that move more or less in the opposite direction of long-term bond funds? Inquiring minds want to know.
UPDATE: Reader William Abbott notes the following two ‘inverse bond’ mutual funds designed to move opposite the latest 30-year treasury bonds:
Profunds Rising Rates Opportunity Fund, and Rydex Juno Fund. Both have only short-term records, invest in very complex vehicles, and charge high annual fees (1.9 and 1.4%, respectively).
Tyler Cowen cautions that nominal interest rates are low, but real interest rates are not that low by historical standards. Reader Ted Frank notes that speculative stock investments, such as Internet stocks, tend to do poorly in a rising interest rates environment. And several readers note that commodities tend to do well when interest rates rise, as this is usually a sign that inflation is also rising.
I seem to vaguely recall that one can invest in funds that invest in long-term loans that actually increase in value if rates are on an upward trajectory, because the loan rates float and increase with rising rates. At least, if there are any closed-end mutual funds that invest in such loans, they would likely trade at a relative premium when rates started to rise.
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