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Take Advantage of Bernanke’s Final Gift to Investors

Jeff Macke
Breakout

Interest rates have been falling over the last month as the Federal Reserve's quantitative easing program gets extended and political uncertainty grows. The interest rate on a 10-year Treasury note (^TXN) is sitting at 2.7% after tickling the underside of 3% in early September. Rates have been trending lower for more than three decades, suggesting to some the move higher in yields so far this year has been just another fake-out.

Portfolio LLC founder Lee Munson is sticking with his call to get out of longer-term notes, saying Bernanke has given investors one last chance to bail out by delaying QE.

"Book the trade!" Munson shouts in the above video. He says the Fed drove this trade by delaying the taper — and a flight to safety ahead of the government shutdown pushed the trade even harder. The difference between 2.7% and 2.5% yields is irrelevant, but getting long bonds while the 10-year yield breaks out over 3% would be a disaster.

Advisors may like to sell customers on the idea that bonds are a safe haven, but Munson regards them as a place to park cash until opportunities emerge in equities. The trade is over, and it's a miracle that it lasted as long as it has. Munson is adamant: If you're getting ready to retire, go to your advisor and grill him or her about the duration and credit risk of your bond portfolio.

He says there's a good chance you have more risk exposure than you may think.

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