Debt-Limit Standoff: 3 Favorite Hedges For Bond Investors Seeking Shelter From Crisis

Zinger Key Points
  • Bond investors tend to like long-dated Treasuries, put options on stocks and long Japanese yen's bets.
  • The dollar was the least-preferred choice, but might still have room to rise in a disorderly sell off.

The latest FX & Rates Survey from Bank of America reveals that bond investors are hunting for long-dated Treasuries, put options on the stock market, and long positions in the Japanese Yen (JPY) versus high-beta currencies to shield themselves from the dangers connected with the U.S. debt limit crisis.

Long-duration bets on U.S. treasuries were favored by 28% of the 73 global fixed-income investors polled by Bank of America, followed by stock puts at 26% and the long JPY strategy at 21%.

Also Read: How Has The Stock Market Historically Performed Once Inflation Peaked?

Only 2% of respondents favored a long USD trade, making it the least popular choice. Conversely, 26% believed that the U.S. dollar could potentially appreciate if broader market risk-off ensues and investors seek a safe haven, especially if the debt limit dispute remains unresolved by its deadline.

Exchange Traded Funds To Express These Views: 

  • Long-duration U.S. treasuries are closely tracked by the iShares 20+ Year Treasury Bond ETF TLT
  • Equity puts are options strategies, but exchange traded funds like the ProShares Short S&P 500 SH and ProShares UltraPro Short S&P500 SPXU can be used to express a bearish view of the stock market. SH seeks a return that is the inverse (-1x) of the S&P 500's daily performance, while SPXU seeks a return that is three times the inverse (-3x) of the S&P 500's daily performance.
  • The long JPY's strategy can be implemented through a forex broker, while if investors want to gain exposure to the Japanese currency against the dollar, the ETF that mimics the JPY/USD exchange rate is Invesco CurrencyShares Japanese Yen Trust FXY

Read now: How Has The Stock Market Historically Performed Once Inflation Peaked?

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