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Tallbacken Capital Advisors CEO Michael Purves shared a contrarian outlook on the bond market with viewers of Real Vision’s Trade Ideas, warning that there is a “good case” to be made for rates going higher.
He pointed out that the correlation between German bunds and 10-Year Treasury yields “has been spiking hugely.”
Given the increasing correlation, Purves believes that if Eurozone data improves, yields will be lifted higher and that could be “exported into our market over here and then you [could] see a quick rise higher here.”
How to Play The Thesis
An obvious way to play the contrarian thesis that rates could actually go higher is to short or buy puts on the iShares Barclays 20+ Year Treasury Bond (TLT), Purves said.
He also shared a couple of more ideas on the same thesis from different angles.
First, shorting utilities. “Within equities, I think if rates do go higher, utilities have been extraordinarily aggressively bid. It’s effectively the same trade, those have a lot of torque to the downside if rates do in fact break there,” he explained.
And second, he said: “Getting long banks would probably play as well, if particularly the back end increases higher and that you see those yield curves ranging a little bit more dynamically to the upside.”
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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