Barbells, Ladders and Avoiding Bondage
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Laddering overseas bonds serves a double purpose. You’re not only spreading interest rate risk, you’re also spreading foreign exchange risk.
A simpler way to play interest rate risk is by barbelling. With that same $50,000, instead of splitting it five ways, you’re splitting it in half. Let’s say you think the yields on 10-year notes will be going up (of course, you can’t be sure). You invest $25,000 in the 10-years. The other $25,000 you invest in short-term notes (maturing in, say, 18-36 months).
At the end of the 18-36 months, you can revisit the 10-year notes. If the yields are more to your liking, you invest. If not, you have the option of reinvesting the $25,000 again in short-term notes, and waiting another year or two to see where the 10-year rates are.
Right now, a lot of people think that U.S. 10-year Government Note yields will be going up, because these bonds are sensitive to the rate of inflation. And inflation is becoming a more serious threat. But if you have money you’d like to invest in bonds right now and you can’t wait, then barbelling may be a sensible strategy for you.
With risk spreading into unexpected places, like municipal bonds, bond auctions, and even the money market, government bonds are one of the truly safe havens left to invest in.
And remember, you can employ these techniques just as effectively with overseas bonds as you could do with U.S. bonds.
Good Trading,
Andrew Gordon
P.S. To let me know what you thought of today’s article, send an e-mail to: feedback@investorsdailyedge.com.
[Ed. Note: With a bear market looming, it’s more important than ever to select safe investments that produce monthly dividend income. Click here to learn about Andy Gordon’s INCOME service that selects the best dividend-paying stocks available.]
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Tags: bear market, Commodity Prices, Dividend Stocks, energy, Food Prices, Government Bonds, inflation, interest rates, stagflation, U S Government Bonds, Us Stock MarketAbout the Author
Andrew is currently the Editor-in-Chief of two monthly investment research services INCOME and The Wealth Advantage. He has also become a leading expert in utilizing Exchange Traded Funds to profit from rising and falling market sectors.
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