Strategies to capitalize on rising interest rates, using Treas Bond
Futures or Exchange Traded Funds


I am interested to know the pros and cons of 2 different strategies
for capitalizing on my view of rising interest rates

1) Shorting Treasury Bond Futures ? is this the best way? What are the
pros and cons. Which Bonds should I short?

2) Hedging Exchange Traded Funds ? It was suggested that one can go
long an ETF like the ishares Lehman 20 year treasure, and go short an
ETF of shorter duration.  Again, is this a good strategy? What are the
pros and cons?

How do these two strategies compare, and are there other simple
strategies I can look at? I don?t want to do complex derivatives.

Thanks a lot.

#1 Well, shorting "costs nothing" now, but may cost you a lot later if
you prove to be wrong. Going long a put option will give you the same
payoff if you're right w/out the risk of being wrong. Of course, you
have to pay premium with the option.

The option also has a fixed duration, whereas a short is theoretically
unlimited (as long as you keep your broker happy).

#2 If you're going long on one part of the yield curve and short on
another, you're making a big bet on how the yield curve itself
behaves. Flattening or steepening can kill you if you're not very
careful.

My standard advice to people asking Qs about complex financial
strategies on Google Answers: if you have to ask, chances are it's too
risky for you. Unless you are careful to structure things so you have
a firm maximum loss amount, then would be willing to take that entire
amount to Vegas and place it all on one roulette spin, don't do it.

Thanks a lot for your comments, that points me in the right direction.