Are you ready to maximize your investment strategy? The 10y-2y treasury spread is poised to surpass 1% by Jan 2025, presenting a $50k opportunity. Ignore the stock market noise and consider this alternative approach: leverage the indices 3x and utilize the remaining margin to invest in a crash-resistant option. After extensive analysis, I’ve shifted from relying on 10y treasuries to advocating for treasury spreads, given their effectiveness in current economic conditions. In the past week alone, my returns have reached $4k, leveraging from 10:-5 to 14:-7 on Friday.
For those unfamiliar with yield spreads, here’s a quick primer: [Link to Investopedia]. Historical data for the spread I’m referring to can be found here: [Link to FRED].
Treasury spreads offer superior hedge capabilities against market crashes, especially compared to traditional bond holdings. They provide robust protection against 10+ year treasury bonds underperforming due to elevated long-term inflation expectations.
In a nutshell, here’s the strategy.
Secure futures access from your broker, purchase 2 ZT (2 year treasury notes), and short 1 ZN (10 year treasury notes) to create a treasury spread. Keep an eye on the ratio for potential adjustments, and ensure you check CME’s site for any ratio changes over time.
Why bother with this strategy? Because futures are exhilarating and treasury spreads offer:
- Lower susceptibility to interest rate movements compared to holding bonds outright.
- Solid crash protection, crucial for optimizing returns in a 3x leveraged QQQ scenario.
- A reliable safeguard against a downturn in 10+ year treasury bonds due to surging long-term inflation expectations.
While the potential gains sound enticing, it’s important to acknowledge the risks. If the Federal Reserve unexpectedly raises the federal funds rate, it could lead to substantial losses. I remain cautiously optimistic, adjusting my leverage based on personal risk tolerance to avoid significant losses.
To dive deeper into the correlation between U.S. Treasury yields and inflation, I recommend reading the detailed article titled “How Well Do U.S. Treasury Yields Forecast Inflation? An Update Through December 30, 2022.” The author provides a comprehensive analysis of historical term premiums and their implications.
Remember, this is not financial advice, but a bold investment strategy to consider. YOLO your savings wisely into this venture, and feel free to share your results. Best of luck!