I am short U.S. Bonds.  I'm short both the ten year futures and the long bond futures.  Last week's announcement by the Fed FOMC dropping the hawkish language about inflation made me nervous about my position but I wanted to wait until I heard Ben Bernanke's testimony this week to decide if I would decrease the size of my short.

I heard him say that the Fed is still vigilant about inflation.  I heard him say that the risks of both inflation and economic slowdown are higher.  That sounds like both more uncertainty or stagflation.  Neither one of these is good for bonds.  I'll keep my short position.  And if if stagflation, a combination of both a slow economy and rising prices, rears its ugly head, I'll be really glad to have those bond shorts (bets that interest rates will rise) to protect my equity portfolio.

If I couldn't hedge rising interest rates with futures (and I got a rebate on shorts stock positions) I would also play this with the iShares Lehman 20 Yr Government Bond Index ETF (TLT – $88.51).  If I have to be in bonds for income and safety but was worried about inflation I'd own iShares Lehman TIPS ETF (TIP – $101.15).  Oh wait, I do own them – I love that yield over 6% and all I have to worry about is inflation falling to hurt my yield.  A rise in long term interest rates will hurt the price of TIP  in the short run but not as much as the TLT. 

Disclosures and Confessions:  I am short both Ten Year Treasury Futures ZNM7, and Long Bond Treasury Futures ZBM7.  I do not own TLT.  TIP is my largest discretionary position (Accumulated over the past year my cost is below here at $99.45)

_{Disclaimer: Nothing in this trade log is meant to be specific financial advice or a recommendation to buy or sell. I do not give investment advice. Do your own research. Do not rely on anything in this weblog to make investment decisions. I do not log all my trades here. I only describe or mention those that I think might be interesting. Consult an investment professional familiar with your specific financial situation before buying or selling any security. Options may be for me but they are are not for everyone.  Futures are highly speculative.  You can lose more than your initial investment in futures.}