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INTEREST BEARING INVESTMENTS
Rising Long Term Rates
Falling Long Term Rates
If long term rates rise while you are holding long
term bonds, then the value of your bonds will
fall.
 10 year Treasuries could actually lose more from
capital depreciation of the bond than is received in
interest.

Non financial types have a hard time understanding
this. Take this example. Suppose you pay $10,000 for
10 year bonds yielding 5%. You'll receive $500 per
year for those bonds. Further suppose that a year
later, the rate for the 10 year Treasury has risen to
7%. If you sell your bonds then, will you be able to
receive $10,000 for your bonds that pay $500 per year
in interest. No! With the current yield at 7%, investors
can pay $10,000 for 10 year Treasuries and receive
$700 per year in interest. Why would they pay you
$10,000 for bonds yielding $500 per year when they
can buy bonds paying $700 per year for that price?

This is not a perfect explanation, but a perfect
explanation is extremely complicated.

Generally, the longer the maturity of your bonds, the
more you'll lose from capital depreciation as long term
rates rise.
So..
if a rising long term rate environment exists,
you should keep your maturities shorter.
You may also consider an inverse bond fund.
If long term rates fall while you are holding long
term bonds, then the value of your bonds will
rise.  
10 year Treasuries could actually gain more
from capital appreciation of the bond than is received
in interest.

Suppose you pay $10,000 for 10 year bonds yielding
5%. You'll receive $500 per year for those bonds.
Further suppose that a year later, the rate for the 10
year Treasury has fallen to 3%. Those poor investors
that buy $10,000 of bonds at that time will only receive
$300 per year in interest.  If you sell your bonds then,
will you be able to receive more than $10,000 for your
bonds which pay $500 per year in interest? Yes! Your
bonds pay  $500 per year and are therefore worth
more than bonds that pay $300 per year.

The most accurate way to value bonds is with net
present value calculations. Many investment brokers
can't perform those calculations. Unless you want to
ruin a good day, leave net present value calculations
alone.

Generally, the longer the maturity of your bonds, the
more you'll gain from capital appreciation if long term
rates fall. So..
if a falling long term rate
environment exists, you should keep your
maturities longer.
Rising Short Term Rates
Falling Short Term Rates
A rising short term interest rate environment typically
favors the 1 year CD. Even 2 - 3 year bonds will lose
some capital value if the 2 - 3 year rates rise. If the 1
year CDs aren't paying well then the choices aren't
very good. You will typically receive higher interest with
the 2 - 3 year bonds but will lose some to capital
depreciation so it may be a wash.
If short term rates are falling, your short term securities
will pay less and less. If long term rates are also falling,
then use longer term investments to lock in those
higher rates.

If long term rates are rising while short term rates are
falling...it's hard to win without using the complex
investment vehicles that professionals use like Interest
Rate Options and Futures. A simpler alternative would
be an
Inverse bond fund.
Callable Bonds:
If you want to lock in a higher rate and profit from a decline in interest rates, don't buy Long Term Callable
Corporate Bonds or a fund that holds many of them. Corporate bonds will pay a higher rate than treasuries of
similar maturity. But, if they are callable, the corporation has the right to pay the bonds off before they mature.

It works like this:
1)
If rates fall after you buy, the corporation can borrow the money at the lower rates and pay off the debt they
owe to you. Then you reinvest the proceeds... at a lower rate than you had before.
2)
If rates rise after you buy the corporate bonds, the corporation is less likely to pay off the bond. Why would
they borrow money at a higher rate and pay off their low interest debts early?
3) In summary, if rates rise after you buy, you are stuck with the lower rate, but if rates fall after you buy then you
get the lower rate in that scenario as well. It's
Heads they win, tails you lose. Callable corporate bonds make
sense if rates are stable instead or rising or falling.


Footnotes:
A 1% to 2% rise in 10 year treasury rates over 1 to 2 years was a frequent occurrence on SignalTrend's historical
charts. The value of a 10 year treasury bond could decline by 10% to 15% as a result of a 2% rise in the 10 year
Treasury rate. If you receive 5% in interest but lose 15% in the value of your bonds, your Total Return will be a 10%
loss. Corporate long term bonds should behave similarly.

You may have to call the Fund to get the WAM (Weighted Average Maturity). The WAM in bond funds fluctuate over
time, so call and check the WAM periodically to be sure that the fund still meets your objectives.

An
Inverse bond fund is designed to rise in value as bond values fall. Hence, it is designed to gain value as
interest rates rise.
_________________________________________________________________________________________________________

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advisor.  SignalTrend does not recommend short selling, the use of margin or any other form of leverage. Please speak to your investment
advisor to determine the suitability of any investment for your objectives and risk tolerance before using any information, product or service
found in this website. Carefully read any fund's prospectus before investing. Please read the following Terms of Use/Disclaimer before
using any part of this website in any way. Your use of this site or any of SignalTrend's  products, services or information  constitutes your
agreement to abide by SignalTrend's Terms of Use/Disclaimer as contained in the following link.
STOCK MARKET
Interest bearing investments are often dramatically affected by changing interest rates. Supposedly safe
investments can actually lose a lot of money, if interest rates move the wrong way after you invest. Subscribe to
SignalTrend's Interest Rate Timing Service. Every 3rd Friday, you'll receive an email with SignalTrend's twelve
month forecast for the four key interest rates in the table below.

Below is SignalTrend's Interest Rate Decision Model. It will help you pick investments that profit from rising
rates and others that profit from falling rates. The paragraphs below will help you better understand how and
why changing interest rates affect your total return. The footnotes are critical. Please read them carefully.
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2
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23%
Annual Return
2
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0
5
1896
ETF Trading Strategy
SignalTrend
ETFs, Inverse Funds & Leverage Funds
Inflation adjusted DJIA, excluding dividends, in arithmetic scale.
Bull Market Investments
Mutual funds and ETFs (exchange traded funds) have been designed to track the DJIA, SP 500 or NASDAQ.
Many have tracked their respective indexes very well with lower turnover and greater efficiency than traditional
funds that are trying to beat the indexes.

Bear Market Investments
Professional investors may choose to short the ETF if they are bearish. Consider an "Inverse Fund" as a
simpler bear market alternative to "shorting the ETF". Inverse funds are designed to move in the opposite
direction of the indexes. For example, an inverse fund designed to mirror the Dow should rise 10% as the Dow
falls 10%. They will not mirror the market exactly but should be close.
If you don't want to short the market or use an Inverse Fund after a bear market signal, you could move your
funds to interest bearing investments like money markets, CDs, bonds or bond funds. Please read the "Interest
Bearing Investments" section below.

Leverage Funds
You may even invest in funds designed to DOUBLE the performance of the Indexes in either direction...bull or
bear. For example, a double inverse fund designed to mirror the Dow should rise roughly 20% as the Dow falls
10%.

Consult your Investment Advisor
Call your investment advisor to find the best fund for you! With ETFs, index funds, leverage funds, inverse funds
and double inverse funds there is a lot to choose from. You can make money in bull and bear markets, with or
without leverage.

Search the Web for the Best Funds
A few searchs on Yahoo or Google should provide additional information quickly. Try the following search terms:
Popular index etfs, bear index funds, 200% inverse funds, double index funds.
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2
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3
SignalTrend's Stock Market ETF  Trading Strategy
SignalTrend's ETF Trading Strategy is designed for investment products that track the DJIA, SP 500 or NASDAQ.
Subscribe to SignalTrend's Stock Market Timing Service. When SignalTrend issues a Buy or Sell signal, you
will be notified by email. In a bull market, buy an ETF or stock fund designed to track the DJIA, SP 500 or
NASDAQ . In bear markets, short the ETF or consider a bear market fund.
DJIA
S&P 500
NASDAQ 100
Bull Market Investment
Bull Market Investment
with Leverage
Bear Market Investment
Bear Market Investment
with Leverage
Buy an ETF or mutual
fund that tracks the
DJIA.
Buy an ETF or
mutual fund that
tracks the S&P 500.
Buy an ETFor mutual
fund that tracks
the NASDAQ 100.
Buy a Leverage Index
Fund that tracks
the DJIA.
Buy a Leverage Index
Fund that tracks
the S&P 500.
Buy a Leverage Index
Fund that tracks
the NASDAQ 100.
Short an ETF that
mirrors the DJIA.
Buy an Inverse Fund
that mirrors the DJIA.
Short an ETF that
mirrors the S&P 500.
Buy an Inverse Fund that
mirrors the S&P 500.
Short an ETF that mirrors
the NASDAQ 100.
Buy an Inverse Fund that
mirrors the NASDAQ 100
Buy a Double Inverse
Fund that mirrors the
DJIA
Buy a Double Inverse
Fund that mirrors the
S&P 500
Buy a Double Inverse
Fund that mirrors the
NASDAQ 100
Long term bonds will decline in value.
Consider shorter term bonds or an
Inverse Bond Fund.
Long term bonds should increase in
value. Make sure thay are not callable
bonds! (Read below)
Be wary of ARMs. Consider paying
points to buy down the rate.
Rates will be higher later
so don't delay.
Rates should be lower if you wait.
Favors ARMs in the short term.
Favors loans with lower points
and no prepayment penalties.
Be prepared for a prime rate
increase of 1-2% per year.
Better to borrow at floating rates than
to lock in a longer term rate.
Renew CDs for shorter terms
Renew CDs for longer terms
10 Year
Treasuries
Mortgage
Rate
Prime Rate
CDs
Up (Rising Rates)
Down (Falling Rates)
Interest Rate Decision Model
Click Here for the Forecast!
Click Here for the Forecast!
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Subscribe
ETF Trading Strategy
SignalTrend's ETF Trading Strategies were  developed
through years of research and thoroughly back-tested over
many decades. Scores of analytical equations were
crafted to provide objective, unemotional trading signals.

SignalTrend has developed an ETF Trading Strategy for
the stock market as an alternative to Buy and Hold
investing.
Its signals should be used to trade the DJIA, S&P
500 and NASDAQ indexes. To get the forecast,
click the Stock Market Forecast link above.

SignalTrend's Interest Rate ETF Trading Strategy
was designed for trading bond funds and interest
rate ETFs. To get the interest rate forecast, click
the Interest Rate Forecast link above.