Long/Short Treasury ETF Strategy for Yield and Profit

Try this on for size.  With money market yields at most brokerage firms under 1% per annum, the search for yield and safety is difficult to say the least.  Lest you lock up your money at your local savings institution in cd's with barely better yields, finding both takes a little creativity.  What I've been doing is pairing up TLT, iShares Barclays 20+ Year Treas Bond ETF, which is currently yielding 4.01%, with TBT, the UltraShort 20+ Year Treasury ProShares ETF, which is currently yielding 1.34%.  Depending on your propensity for risk, this pairing can be used in a couple of ways. For higher yield compared to money market and to neutralize market risk you could buy both as a hedge at a ratio of 4:3; for example 1000 shares of TBT and 750 shares of TLT.  With this ratio the shares trade, on a profit and loss basis, at a virtual mirror image.  You're up on one position as much as you're down on the other. The direction of treasuries is irrelevant. You'd be garnering significantly higher yield with little to no risk. At that ratio the yield is about 2.17% (the average yield on taxable money markets at the broker I use is about 0.75%) with the volatility nearly perfectly neutralized.  For my more conservstive clients this is a great money market alternative.  The other way to play it is as a source of higher yield while also looking for profit. Depending on your personal bias, you could alter the ratio and overweight one or the other ETF's.  If you think yields will fall, overweight TLT.  If you think yields will rise, overweight TBT.  As long as you own both you are protecting yourself to some degree from being wrong, you could be creating a potential profitmaking opportunity, and at the very least, at the ratio of 4(TBT):3(TLT), providing yourself a liquid alternative to money markets or cash.  Disclosure: I am long both TBT and TLT.