We’ve been taking a look at the bond yields and they are getting very attractive so we decided to chart TLT and take a historical look at yields and the fed funds rate.
The chart above has a 20 year window and shows the loose correlation to yields on the 20 year bond against the fed funds rate. Our strategy here would be to buy small blocks of TLT each month and perhaps sell OTM call options on it creating our own TLTW. We would acquire TLT through cash secured puts and continue to earn interest on our cash holding in our brokerage account.
We’d earn anywhere from 4 percent annual yield on this and perhaps an additional 6 to 10 percent selling call options but the best part is not worrying about the volatility in real estate or equities. Over the long term, we may pick up an addition 30 or 40 percent if and when the fed begins to cut rates again. The big risk here is if the fed continues to hike rates then TLT will continue to drop in value.
The other option we are pursing are municipal (tax free) bonds however the yields on those bonds are not yet attractive enough but we’ll keep looking so stay tuned, stay profitable and stay solvent…