04 18 2017 | by Victor Xing | Capital Markets
02 17 2017 | by Victor Xing | Economics
Looming risks through the prism of bifurcated housing market
01 11 2017 | by Victor Xing | Economics
Financial risk contagion: China’s capital outflow
12 22 2016 | by Victor Xing | Economics
November PCE: dollar strength weighed on goods inflation
12 14 2016 | by Victor Xing | Central Banks
A less-hawkish interpretation of the December FOMC
12 02 2016 | by Victor Xing | Economics
November Payrolls and Governor Powell on risk management
11 15 2016 | by Victor Xing | Central Banks
November FOMC minutes and debates behind guidance change
11 04 2016 | by Victor Xing | Economics
October Payrolls: decent data with stronger wage growth
11 02 2016 | by Victor Xing | Central Banks
November FOMC: forward guidance and the return of “some”
11 01 2016 | by Victor Xing | Economics
September PCE: goods and energy inflation lead the index
10 02 2015 | by Victor Xing | Capital Markets
What are the best investments during a severe stock market downturn?
7 year U.S. Treasuries would be a good choice if an investor holds a view that there will be a severe stock market downturn (sell-off) over the near term.
Investing 100K would give you a risk exposure of roughly $68 per basis point move in 7 year Treasury note yield (a basis point is 0.01%).
Why the 7 year instead of other tenors? The TY future contract usually lead a rally on non-FED induced risk-off, and the cheapest to deliver bond for TY is roughly in the 7 year sector (more like 7.5 year). So TY and 7s usually move in tandem. Alternatively, you can open a brokerage account that supports futures, and you can long a single contract of TY (it is a levered investment with a notional value of $100K).
However, if a severe stock market downturn is due to Federal Reserve policy concerns, i.e. the FED hints the next rate hike will come sooner than expected, and they will hike more frequently than market expectations, then 7 year part of the Treasury curve will likely under severe stress (but less so than 3 year and 5 year notes), with flight-to-quality flows (stocks will also do poorly) boosting less interest rate sensitive 30 year Treasuries (or Treasury futures).
Thus, an investor would be taking interest rate risk by investing in Treasury notes and Treasury futures.
Next article10 02 2015 | by Victor Xing | Central Banks