“After listening to Friday's audio and other comments on bonds and interest rates, what would you recommend is the best way to trade spread betting, if you thought that interest rates were going to start to rise again? It goes against my trading plan to short markets!

“Many thanks and keep up the great service.”

Eoin Treacy's view Thank you for this interesting question which may be of interest to other subscribers. Let me first clarify our view on interest rates. We believe that government bonds exhibit all the characteristics of a market mania which has yet to climax.

Following Ben Bernanke's statement on Friday, the likelihood of interest rates rising in the near future is virtually nil. In fact traders have been busy pricing in the opposite scenario and Treasuries have rallied impressively since mid August. Since real interest rates are negative, investors are buying bonds for their momentum rather than yield. When the Fed eventually stops supporting the market, , that final motivation will disappear and interest rates will rise.

The most obvious answer to your question would be to short government bond futures. However since you state an aversion to shorting, then an asset class with the ability to raise its payout to keep pace with rising interest rates would be good quality equities. This is why we have focused so much attention of the Autonomies over the last year. (Also see Comment of the Day on August 13th). As companies with a true global presence, strong balance sheets and often lengthy records of dividend increases, they are well placed to benefit from an environment where interest rates rise.