Treasury Strategy

This shouldn't be news for anybody, but I thought putting down my belief in a current bond bubble is important. Obviously, this bubble has been talked about endlessly for a number of years and it should be of a very real concern. Realistically interest rates will not continue to remain so low and will eventually regress to a certain historical mean. Investors who rushed out of stocks in 2008 and who are still in bonds because they were advertised as being safer...including corporate bonds...will see their investments hurt rather seriously if interest rates increase. I say in corporate bonds as well since there is an interconnectedness between treasury rates and corporate rates. This lies in the fact that corporate rates should be higher than treasury rates and if treasury rates increase corporate rates will follow suit. If corporate rates increase, this will drive down the prices of bonds in the market and investors will lose money if they intend to liquidate their positions.

An interesting strategy I have heard and discussed has been to go long the longer term treasury then short the shorter term treasury:

The longer term premise of this strategy is that the shorter term treasuries will "bow out" a bit further so you will profit from falling prices of treasuries in your short position.  It is definitely an interesting and potentially profitable strategy to employ.  The downside is obviously short term rates remaining low and even dropping further, but again from a long term perspective interest rates are likely to regress at least somewhat to a historical mean.