Betting On Higher Interest Rates Using The Online Brokers (AMTD, SCHW)

Investors who have been betting on higher interest rates in the United States have been burned badly in 2010. Treasury prices have risen and yields have fallen precipitously. The iShares Lehman 20+ Year Treasury Bond ETF

has gained nearly 11% year-to-date. The current yield on the 10-year bond is at an extraordinarily low 3.44%. The low interest rate environment has taken a toll on the shares of online brokerage companies who have seen their ability to earn interest from assets under management hampered and have been forced to waive hundreds of millions in fees from money market funds this year. Charles Schwab

has fallen well over 20% in 2010, and rival TD Ameritrade

is down around 16% year-to-date. Lower trading volumes have also been weighing on the online brokerage complex. In particular, it appears that the "flash crash" which occurred on May 6th has severely undercut investor confidence. A move higher in interest rates, however, may provide a catalyst for stocks like TD Ameritrade (

) and Schwab (

). Many analysts, however, are not looking for interest rates to tick up until next year and the Federal Reserve has said that the fed funds rate will remain exceptionally low for an extended period of time. Interest rates are being pushed down by concerns about global growth and the state of the economic recovery. Treasuries have been benefitting from a "flight to safety" trade throughout 2010. One would think, however, that with the United States running huge deficits and no viable plan on the table to get spending under control, the market will sooner or later demand higher rates of return in exchange for purchasing U.S. government debt. In fact, many observers believe that the Treasury market is in a bubble state, and sooner or later interest rates will move violently higher. At current levels, the online brokers look quite attractive if such a scenario comes to fruition.