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iShares Barclays Short Treasury Bond Message Board

  • speedydekker speedydekker Aug 20, 2008 3:08 PM Flag

    SHV a hedge against rate hikes

    Either party gets elected this year, rates have to rise because of inflation threat.

    So I figure this is a way of hedge. Have no idea how it works but it should in cease if rates rise.

    Put is a stop loss 5% below pp,.

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    • If rates rise, bond prices decline, so this would tend to decline in price in order to yield a higher interest rate in accordance with any rate hike.

      If the rate is 5% on a $1000 long-term bond and the going rate goes to 10%, that $1000 face value bond would have to sell at $ 500 to yield 10%, since it pays 5% of $1000 no matter what the market price of the bond happens to be.

      You are right in a way. Since this is a short-term bond fund, the effect would be moderated by the constant maturing and replacement of old bonds with new ones yielding the current rate.

      Look at a long term chart of SHV and compare it to LQD which is composed of long-term bonds.

    • wrong

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