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The 10-Year Mistake

Contributed by mm | March 29, 2004 05:21 AM PST



Donald Luskin argues in SmartMoney that although the margin between Fed rate and 10-year Treasury is almost at its highest since the 80s, it's definitely not a good time to chase the yield by moving out of money markets. His reasoning: a 1.0% Fed rate increase and similar 10-year Treasury yield increase will make a cut of 6.75% of the principal, and it will take more than 2 years of the incremental gain (margin between 10-year Treasury yield and money market funds) to recover, and it is mor elikely that 1-percent jump in rate is a certainty given today's climate.

The article also mentioned Rydex Juno Fund (RYJAX), a fund that "seeks total return, before expenses and costs, that inversely correlates to the price movements of the 30-year Treasury bond." With no front-load and reasonable fee (0.90% management fee and 0.25% 12b-1 fee), this fund is an interesting tool to bet against the bond market. Although the fund's initial investment requirement is $25,000, one should be able to purchase with $1,000 or so at discount brokerages.

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