Apparently, I’m the only one who’s been calling a bottom in real yields for the last three months.
Now, we’re seeing the 5y real yields approach the “ceiling” of -150 bps. Nobody is concerned given that real yields are still negative - but that’s not the point.
Rising real yields are going to push financial conditions and the dollar higher. It’s going to cause significant strain in the credit markets, too.
After already having exposure to short local EMFX debt via $EMLC, I’ll look to short the iShares iBoxx $ High Yield Corporate Bond ETF ($HYG) on a bounce between $86.39/50.
Markets are obviously extended, so wait for the pull back. What we are looking to achieve is riding down the break out in real yields.
Another option is ProShares Short High Yield ($SJB), which seeks -1x the daily performance of HYG.
Don’t have an itchy trigger finger, though. The dollar is nearing the top end of the range at 96.40 with a probable pull back to 94; and that would cause the aforementioned tickers to bounce.
Intermediate trading ranges:
HYG: 88.91/85.59
SJB: 18.01/17.50