Yeah swaptions would be nice but it seems like the minimum size is $1mm.
Why not just short-sell treasuries (e.g. TLT)?
Futures and options give you a lot more leverage than short selling. A $100k short position on TLT would be $30k of maintenance margin, compared to $7,400 for UB.
And banks and hedge funds arbitrage futures prices against the underlying asset, so trading futures basically gives you access to institutional interest rates instead of retail margin rates. Right now the rate difference for short selling on IBKR is ~5% for accounts <$100k and 1.25% for accounts between $100k and $1mm. Plus the borrow fee which is currently only 0.3% for TLT but would go up if lots of people start shorting it.
Buying TLT puts is worth looking into though.
I spent a couple hours looking at different methods to efficiently short long term bonds:
The Eris SOFR Swap Futures sound promising but I would need to do a lot more research before investing, I'm wondering if anyone else has thoughts on this first. I might try and create a model to estimate the expected returns of each type of instrument in a normal world and a slow takeoff 50% rate world.
Edit: According to this thread, all three are functionally identical, so any significant difference in returns should get arbitraged away. If that's the case, then the Eris Swap Futures seem to have very poor liquidity so I would not recommend them.
However, since they're architected differently, it's possible that they are arbitraged to have very similar expected return profiles in normal times, but offer very different returns if interest rates go way out of distribution.
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