Note that ancient plagues provide more evidence on the relationship between interest rates and mortality. It’s likely hard to distinguish real rates from the inflationary effects, but the inflationary effects are likely due to the expectation that mortality will reduce the value of holding money (that kind of inflationary effect would tend to support your claims).
It looks harder than you indicate to profit from the bond market mispricings. Still, it looks promising enough that I feel foolish for not looking into it before this.
I’m unwilling to bet against t-bonds now. Investors likely overestimate near-term inflation. Changes in inflation forecasts are likely to dominate the t-bond market this year.
Shorting TIPS is a more pure way to bet on real rates. The 2040 TIPS (and later years) look weirdly overpriced.
A quick glance suggests that I can’t short TIPS directly, at least at IBKR.
Shorting LTPZ looks superficially great, but SLB rates on IBKR have been ranging from 4 to 6.44%. That eats up much of the expected profit, but is maybe still worth it.
Buying TIPD looks like currently the best choice. But if it’s doing a better job of what I’d like from shorting LTPZ, why are investors paying so much to short LTPZ?
If I evaluate TIPD (or shorting LTPZ) as a stand-alone investment, it’s unlikely to be as good a bet on AGI as semiconductor stocks. But it seems likely to be negatively correlated with my equity investments, which suggests it’s sort of like a free lunch.
I’ve found a better way to bet on real rates increasing sometime in the next decade: shorting long-dated Eurodollar futures, while being long 2025 Eurodollar futures (to bet on a nearer-term decline in expected inflation).
The Eurodollar markets are saying that interest rates will start slowly rising after about 2027, implying a mild acceleration of economic growth and/or inflation.
I spent nearly 2 months trying to short the December 2032 contract, slowly reducing my ask price. As far as I can tell, nobody is paying attention to that contract. At very least, nobody who thinks interest rates will be stable after 2030.
Recent events prompted me to look for other Eurodollar contract months. I ended up trading the September 2029 contracts, which have enough liquidity that I was able to trade a decent amount within a few days.
That gives me a fairly pure bet on short-term interest (nominal) rates rising between 2025 and 2029.
I mostly agree with this post.
Note that ancient plagues provide more evidence on the relationship between interest rates and mortality. It’s likely hard to distinguish real rates from the inflationary effects, but the inflationary effects are likely due to the expectation that mortality will reduce the value of holding money (that kind of inflationary effect would tend to support your claims).
It looks harder than you indicate to profit from the bond market mispricings. Still, it looks promising enough that I feel foolish for not looking into it before this.
I’m unwilling to bet against t-bonds now. Investors likely overestimate near-term inflation. Changes in inflation forecasts are likely to dominate the t-bond market this year.
Shorting TIPS is a more pure way to bet on real rates. The 2040 TIPS (and later years) look weirdly overpriced.
A quick glance suggests that I can’t short TIPS directly, at least at IBKR.
Shorting LTPZ looks superficially great, but SLB rates on IBKR have been ranging from 4 to 6.44%. That eats up much of the expected profit, but is maybe still worth it.
Buying TIPD looks like currently the best choice. But if it’s doing a better job of what I’d like from shorting LTPZ, why are investors paying so much to short LTPZ?
If I evaluate TIPD (or shorting LTPZ) as a stand-alone investment, it’s unlikely to be as good a bet on AGI as semiconductor stocks. But it seems likely to be negatively correlated with my equity investments, which suggests it’s sort of like a free lunch.
I’ve found a better way to bet on real rates increasing sometime in the next decade: shorting long-dated Eurodollar futures, while being long 2025 Eurodollar futures (to bet on a nearer-term decline in expected inflation).
The Eurodollar markets are saying that interest rates will start slowly rising after about 2027, implying a mild acceleration of economic growth and/or inflation.
I spent nearly 2 months trying to short the December 2032 contract, slowly reducing my ask price. As far as I can tell, nobody is paying attention to that contract. At very least, nobody who thinks interest rates will be stable after 2030.
Recent events prompted me to look for other Eurodollar contract months. I ended up trading the September 2029 contracts, which have enough liquidity that I was able to trade a decent amount within a few days.
That gives me a fairly pure bet on short-term interest (nominal) rates rising between 2025 and 2029.