Join the Wall Street Vigilantes With This ETF
2021 was the year of the meme stock trader.
These investors passed along stock tips on Reddit message boards and Discord.
They attacked stocks like schools of piranha with millions of tiny bites.
Their actions sent shares of stocks like GameStop and AMC soaring higher.
The meme traders even managed to keep car rental company Hertz out of bankruptcy.
They tripped off a short squeeze in the company’s stock. That let Hertz raise capital and pay back its creditors.
I’ve never seen anything comparable in my 25 years as a professional investor.
As the meme stocks went, so did the market.
And there’s another Wall Street character wrangling control of the markets this year.
This player is often spoken about but rarely seen, like a financial chupacabra.
It’s been decades since this player was even mentioned in the financial media.
It’s time to pay attention once again, as these traders will set the course of the market over the next few years.
The Bond Vigilantes Are Back in Town
A bond vigilante is an investor who protests against monetary or fiscal policies by selling bonds.
In doing so, they push interest rates higher.
The term originated in the 1990s. That was when fears of federal spending under President Bill Clinton pushed U.S. 10-year yields from 5.2% to over 8%.
At the time, Clinton’s political adviser, James Carville, remarked, “I used to think that if there was reincarnation, I wanted to come back as the president or the pope, or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”
Over $5 trillion in pandemic-era stimulus spending is creating the same fears of runaway government spending.
You’ve probably seen prices climb at the pump and in the supermarket aisles as inflation rages at 40-year highs.
And the bond vigilantes are back in town.
You can see this in the rise of the TNX, which tracks the yield on the U.S. 10-year note.
It shows that yields are at their highest level in three years:
10-year yields have risen from 1.5% at the start of the year to nearly 2.5% now.
They’re not far from the 3% level that yields reached in 2014 and 2018.
Rising yields makes credit more expensive. It raises the prices of mortgages, auto loans and corporate debt.
When credit growth slows, so does the economy.
How to Capitalize on Rising Rates
Part of the reason for rising yields is the Federal Reserve’s unwinding of the grandest monetary experiment of all time.
Not only is the Fed raising short-term rates this year, but it’s moving away from the pandemic-era stimulus of buying bonds on the open market.
The Fed now owns about 25% of all U.S. Treasury debt. It’s not intending to sell this debt, but will hold it to maturity on its balance sheet.
Investors that want to capitalize on rising rates can purchase the ProShares UltraShort 20+ Year Treasury ETF (NYSE: TBT).
This exchange-traded fund is a leveraged bet on rising interest rates.
It uses swaps and futures to give investors 2X exposure to daily moves in Treasury bonds with more than 20 years left to maturity.
The price hit $22 last week, up from $17 at the start of the year.
With interest rates poised to climb this year, it’s a great way to participate with the growing chorus of bond vigilantes.
Editor, Strategic Fortunes
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My career on Wall Street started while I was in college. I spent a summer interning for Merrill Lynch in the middle of the ‘90s bull market. I was fascinated with trading, and as a result, after college, I joined Salomon Brothers in the famed mortgage bond trading department. Later, I spent time at Citigroup working with credit derivatives. Eventually, I needed to walk away from the excess of Wall Street. That’s when I joined Banyan Hill in 2017. Now I help readers get ahead of the market and build their retirements.