Last Thursday, after the stock market close, the Federal Reserve took what some are saying is the first step in the process of tightening up on the money supply by raising the discount rate by 0.25%. Fed Chairman Bernanke was quick to dispel any rumors of interest rate increases in the near future, as we would expect him to do.
The markets, perhaps the better indicator of investor sentiment, have been mixed after the Fed's action. After stock futures took a hit on late Thursday after the late-day announcement, the Dow actually closed at a gain on Friday. Since then, the Dow has been generally down, but the markets are definitely not in a panic. If the discount rate increase was a trial balloon for future interest rate increases, as I think it was, then the Fed has, so far, received an answer that the economy and stock market may be ready to at least entertain the idea.
So what does this mean to you as an investor? For those wanting to capitalize on the price movement of the long-term Treasury bond, it could mean an opportunity is at hand. However, there are still many uncertainties in the world that could drive Treasury bond prices up or down. Fortunately, there is a way to invest so that you can have a long or inverse (short) exposure to price movements of long-term Treasuries. This week, I'll again discuss the Hg Capital Long/Short Government Bond Program and why this strategy may be tailor made for the bond markets ahead.