Place a Bet Against Uncle Sam

If you think easy money and staggering deficits will lead to inflation, consider investing in an inverse bond fund.

Bond investors are finally coming to their senses. How else to explain the recent run-up in Treasury-bond yields? Since the yield on the ten-year Treasury note bottomed at a record low 2.04% on December 18, it has rebounded to 2.80%. The yield on the 30-year T-bond, which also bottomed on December 18, at 2.54%, closed January 29 at 3.56%.

Because bond prices move inversely with yields, the recent moves are bad news for holders of Treasury bonds and funds that that invest in Treasuries. For example, between December 18 and January 29, the share price of Vanguard Long-Term U.S. Treasury (symbol VUSUX) declined by nearly 9%.

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Manuel Schiffres
Executive Editor, Kiplinger's Personal Finance