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Treasuries Remain a Buy For Safety

02/07/2020 5:00 am EST

Focus: FUNDS

Mike Larson

Editor, Weiss' Safe Money Report & Under-the-Radar Stocks

If the economy is weakening, the Fed is cutting rates here and rates are falling globally, what are income-seeking investors going to buy in addition to higher-yielding stocks? You guessed it: U.S. Treasuries, asserts Mike Larson, growth and income specialist and editor of Under-the-Radar Stocks.

That doesn’t mean I love our government’s financial situation. Far from it. The U.S. budget deficit soared 17% in 2019 to more than $1 trillion. That’s the first time since 2012 we topped that mark, and there’s no reason to expect that to change with federal spending growing twice as much as revenue in the last few years.

This chart shows what has happened to the total federal debt load as a result of soaring deficits. It’s closing in on $23 trillion, almost double its level a decade ago!

chart

And yet, gains keep piling up for Treasuries. iShares 20+ Year Treasury ETF (TLT) has returned around 17% in the last couple years. If rates keep falling, those gains will keep piling up because bond prices move in the opposite direction of yields.

All of this is why I recommend you keep holding the ProShares Ultra 7-10 Year Treasury (UST). It’s also why I recommend you profit from the intensification of the income investment movement by purchasing the Pimco 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ).

chart 1

ZROZ is an ETF that’s designed to track the performance of the ICE BofAML Long U.S. Treasury Principal STRIPS Index.Yes, that name is a mouthful. But this is the most important information you need to know about the index and the ETF that follows it:

1) Treasury “STRIPS” are specialized securities that represent single coupon or principal payments made by underlying Treasury bonds. STRIPS are more interest rate-sensitive than traditional Treasuries. That means they rise more in price when the overall level of interest rates falls, and vice versa.

2) The longer-term STRIPS (those with more than 25 years left until maturity) that ZROZ owns are even more interest-rate-sensitive. In other words, they’ll see even bigger price gains than shorter-term STRIPS when rates fall.

3) Bottom line: ZROZ is a way to profit from falling interest rates.

Only this ETF is even more aggressive, and therefore potentially profitable than other investment options. ZROZ has gained more than 23% in the same two-year time frame that TLT has risen 17%, by way of example. Go ahead and buy ZROZ at the market.

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