Trading the yield curve futures and options can help you retire safely and early
Bill Jones
Jul. 13, 2007

The stock market bubble is real. It is a shame not to be fully invested in this market. But for retirement funds, it is equally senseless to stay in the middle of a bubble ready to burst any time.

Some smart investors have chosen an alternative method. Making that 40% return staying outside the stock market. The return can even be as high as 100% if managed properly.

The safest investment during time like this (before a financial meltdown) is the US Treasuries. You can only trust the Government who can print the money.

These investors are playing an interesting game. They are long the short ends of the yield curve while short the long end. The assumption is that the Fed will lower rates to fight stagflation. The Fed can only control the shorter end of the yield curve. The longer end is controlled by the perception of inflation in the economy.

If you agree that the economy is faced with stagnation and inflation, then you can easily understand the concept. The Fed will fight in the next several years the stagnation in the economy by lowering short-term interest rate.

But the long term rates are going to go higher because of perceived higher inflation from energy, assets, commodities, and emerging economy labor shortages.

Some investors are going long the futures and options on the short end of the yield curve (2 year note or lower than that) and shorting the futures and options of long bonds and ten year notes.

Before following this strategy you must recognize that the beta or volatility of short term notes are way lower than the long term bonds and notes.

Trading the yield curve futures and options can help you retire safely and early
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