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With Treasury Yields Tanking, The Japanese Yen May Be A Better Hedge For Stocks

Published Mon, 19 Aug 2019 10:31:48 -0400 on Seeking Alpha

In this article, I'd like to share an interesting idea that readers might consider for their portfolio. If you read my articles, you probably know that 10-year Treasury yields have dropped from over 3 percent when I began writing about them in November to under 1.6 percent today. That's great for my friends who entered the trade back then, but as such, Treasuries are now no longer likely to be a strong source of future return and only have good value as a hedge against equity volatility. The question that investors should ask now is whether there are better hedges out there given that 10-year Treasuries may be overextended.
How the Japanese yen carry trade works
To understand the yen, first, you have to understand the carry trade. The carry trade, in a nutshell, is when investors in countries with low interest rates swap their local currency for a currency with a high interest rate. The idea is that you can pocket the difference in interest and swap the currency back at a later date so you can spend your profits. Alternately, investors in other countries can borrow money in low-yielding currencies and invest the difference in higher-yielding currencies.
Although the proper implementation can be a bit complicated, the strategy really does work, as investors historically can make risk-adjusted returns similar to the stock market from so-called carry trades.
Portfolio value of a basket of carry trades 2008-2019
Source: Quantpedia
Historically, Japanese... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
PROSHARES ULTRAPRO SHORT S&P 500 25.26   0.0 0.00 0.00 2.32
SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST 272.32   0.0 0.00 5.67 2.10
PROSHARES ULTRASHORT S&P 500 28.97   0.0 0.00 0.00 1.97
SPDR S&P 500 ETF 301.29   0.0 0.00 5.42 1.82
POWERSHARES QQQ TRUST SERIES 1 193.23   0.0 0.00 1.49 0.78

PROSHARES ULTRAPRO SHORT S&P 500 - SPXU
PROSHARES ULTRAPRO SHORT S&P 500 - SPXU  


Older articles featuring Proshares Ultrapro Short S&p 500 (SPXU):
Why S&P 500 Remains A Buy With 10Y Treasury Yield At 2%
Yield Curve Improvement Bodes Well For Economy
Dividends By The Numbers In October 2019
The Shifting State Of Yields
The Inverted Yield Curve
Fading Risk Aversion Will Boost Bond Yields
Yield Curve Disinversion
Bond Market History: When The Yield Curve Un-Inverts
Why Dividend ETFs, REIT ETFs, And Low-Volatility ETFs Still Work
Weekly High Frequency Indicators: Yield Curve Boosts Long-Term Forecast, Consumer Still Solid

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