Is it time to short the Bond Market Using TBT?

Shorting the Bond Market is a risky bet if you believe the Economy may stall or the Stock market may fall.  One of the most popular ways to short the bond market is to use ProShares UltraShort Lehman 20+ Yr(ETF) (NYSEARCA:TBT), and given the probable increase in interest rates in September the decision almost seems like a no-brainer until you peel back the layers.  There is much more risk in shorting the bond market than most people think.

Added risk does not necessarily mean it is a bad decision, but it is an instrument that needs to be traded, and that means timing means everything.  We like to pride ourselves in our ability to time the market itself, and we apply those same principles to ETFs like TBT to do the same.

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Our fundamental observation is that Market risks will surface, geopolitical risks will surface, and interest rate risk is real, but we do not believe that market risks will manifest until next year begins.  That means the interim market risks that seem to have driven down TBT recently could wane...

Before we get there, understand that it has been, without a doubt, the market, economic, and geopolitical risks that have caused buyers to step into the bond market even though interest rates are poised to move higher.  This may sound illogical given the inverse relationship, but bonds, especially Treasury Bonds, are where big investors go to find safety.  The demand for bonds recently has something to do with that.

Everything considered, we must understand that 'shorting the bond market' is not as easy as predicting that the FOMC is going to raise interest rates.  There is much more to it than that, and if you ignore the other variables you could easily find yourself down 20% in an ETF like TBT. 

I heard from a number of smaller investors when TBT was over $50 that this was a 'no-brainer' and a 'sure thing.'  Now the ETF is near $43.  A 14% decline in a 'sure thing' is not supposed to happen, so this should prove that TBT is NOT a sure thing at all.

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