When investing, the key is to look at assets that are undervalued and have a path to increase in value at some point in the future. There has been interesting de-valuation of the Treasury bond ETF TLT over the past year as the Fed hikes interest rates.
There is an inverse relationship between bond prices and bond yields as the chart below illustrates:
TLT has been trending down since Covid started and has been aggressively declining as the Fed aggressively hikes interest rates. We expect the TLT decline to continue up until the Fed pauses rate hikes. After the Fed begins to lower interest rates, we would expect TLT to start rising.
TLT pays a dividend so initiating small buy/write (covered calls) in TLT seems like a prudent investment however we will need to wait until after the December Fed meeting to enter a strategic position. Since TLT may be nearing lows, selling naked puts far into the future may be an investment that pays off but we will research those opportunities in more detail over the next few weeks.
In the meantime, stay tuned and stay solvent…