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This 'widow-maker' trade capitalizes on zero interest rates

The world of zero interest rates is making life tough for investors, particularly in the bond market.

One fixed income expert believes he has a way to capitalize.

Adam Fisher, the co-founder and chief investment officer at CommonWealth Opportunity Capital, which manages about $2 billion for clients, advocates a trade that is short interest rates in Japan and long rates in Europe.

He said negative rates are going to result in a low level of private sector borrowing which will trigger a need for a high level of public sector borrowing. Japan, he said, will do just that, but Europe will not, pushing their rates in opposite directions.

"With the advent of negative rates, it's only the public sector that's going to be able to borrow," Fisher said Wednesday at the Sohn Investment Conference in New York. "We think that's possible in Japan but highly unlikely in Europe."

Fisher called the Japanese 30-year bond "maybe the most overpriced security on the face of the Earth." He proposed selling, or going short, the 30-year, while owning the five-year.

"We believe that this leg of the trade is a massive in-the-money option with policy upside," he said.

Fisher called that the short rate trade in Japan a "widow marker for 30 years" while the long trade on European rates "the new European widow-maker," a term generally used to describe a high-risk high-reward endeavor.