Public trading strategy
Inflation topping 4% and rate hikes looming — short long-term bonds
Thesis
When inflation rises, the value of existing bonds drops because investors demand higher interest payments to keep up with rising prices. With major banks now expecting the Fed to hike interest rates multiple times, bonds are facing a tough road ahead. Long-term bonds take the hardest hit because their payouts are locked in for longer periods. If the upcoming inflation data confirms these fears, bond prices could fall sharply as investors sell to avoid losing money.
Strategy approach
Build a mean-reversion/short strategy for long-duration Treasury bonds (TLT). Enter short when the 10-day moving average crosses below the 50-day moving average and the RSI(14) is below 40. Set a stop loss at 5% above the entry price and a take profit at a 4% decline.
Markets and timeframes
TLTdaily