Trader bets against bonds following Fed’s rate hike

The Fed's decision on Wednesday to hike interest rates led bond yields soaring to their highest levels in years, sending bond prices lower, and one trader says the bond wreck isn't stopping here.

The 20-plus-year Treasury bond ETF (TLT) dropped following the Fed's rate hike announcement as well as its expectation that it will hike rates thrice in 2017.

"I think there's going to be more interest rate raises in the future, and that's why I think the TLT is going lower," Andrew Keene of AlphaShark said Wednesday on CNBC's "Trading Nation."

More specifically, Keene believes that TLT could actually drop another 7 percent or so points to $110. This is based on Keene's own observation that since the election, every time the TLT hits its 20-day moving average, the ETF then moves lower. If the trend continues, says the trader, then TLT will follow what looks to be a downward channel that could take it to $110.

Keene wants to buy a "bear put spread" in preparation for a move down in TLT. He is buying the March 114-strike puts and selling the March 110-strike puts for a total cost of $1, or $100 per options spread.

If TLT closes above $114 at expiration, Keene would lose the $100 he put down to make the trade. But if TLT were to close below $110 at March expiration, the spread will be worth $400, meaning that Keene will quadruple his money.

Trader takeaway: Keene believes more rate hikes are on the way, so he's buying the TLT March 114/110 bear put spread for $1.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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