Rising Yields, Rising Risks: How to Hedge with TBT, VGK, and FLOT

The U.S. Treasury market is in a state of flux. As of May 2025, the 30-year yield has oscillated between 4.5% and nearly 5%, a reflection of fiscal uncertainty, geopolitical tensions, and the Federal Reserve’s cautious rate-cut stance. With the yield curve flattening and credit ratings downgraded, investors face a crossroads: how to protect portfolios from rising rates while capitalizing on opportunities abroad. The answer lies in niche ETFs that exploit these dynamics—starting with ProShares UltraShort 20+ Year Treasury (TBT), iShares MSCI Europe ETF (VGK), and iShares Floating Rate Bond ETF (FLOT).

The Case for TBT: Shorting Long-Term Bonds in a Volatile Yield Environment

The ProShares UltraShort 20+ Year Treasury (TBT) is a leveraged play on rising yields. With the 30-year Treasury yield at 4.83% as of May 9 and dipping to 4.57% by month-end, TBT’s inverse strategy benefits when long-term rates climb—a scenario supported by lingering inflation risks and the Fed’s reluctance to cut rates aggressively.

TBT’s 2x leverage amplifies gains when yields rise, making it a tactical tool for investors betting on the Fed’s “sound money” stance. But be warned: this ETF is not for the faint-hearted. Volatility is inevitable, but with the 10-year yield averaging 4.37%—near historical norms—and fiscal deficits expanding, the case for higher yields remains strong.

Global Diversification: Why VGK is a Hedge Against U.S. Fiscal Weakness

The iShares MSCI Europe ETF (VGK) offers a critical escape hatch from U.S. market risks. With Moody’s downgrading U.S. debt to Aa1 and fiscal debates intensifying, Europe’s undervalued equities provide a buffer.

European equities trade at a 30% discount to U.S. peers, according to Barclays, despite the ECB’s rate-cut path to 1.75% by year-end. Sectors like industrials and financials—key VGK holdings—are poised to rebound if global trade stabilizes. The Eurozone’s manufacturing recovery and AI-driven infrastructure spending (think green energy) create tailwinds for companies in VGK’s portfolio.

FLOT: Floating-Rate Bonds for a Rising Rate World

Interest rates are here to stay—and so is duration risk. The iShares Floating Rate Bond ETF (FLOT) offers a shield against this. By holding bank loans and floating-rate notes, FLOT’s yields reset with market rates, eliminating the “coupon wall” vulnerability of traditional bonds.

With FLOT yielding 5.43% annually as of May 2025—versus 4.37% for the 10-year Treasury—the ETF provides a high-income alternative while insulating against rate hikes. This is critical: as the Fed’s “one-and-done” rate cut path limits downward pressure on short-term rates, floating-rate instruments become the new fixed-income staple.

Sector Rotation: Beyond the ETFs—Where Else to Look?

The broader strategy? Rotate into sectors that benefit from rising rates and global diversification:
1. Energy: Norway’s state-owned energy companies (think Equinor) are well-positioned for green infrastructure spending.
2. Small-Caps: Equal-weight ETFs like the SPDR S&P MidCap 400 ETF (MDY) outperform when rate cuts stabilize economies.
3. Healthcare: GLP-1 drug manufacturers and robotics firms are insulated from macro headwinds.

The Bottom Line: Act Now Before the Curve Steepens

The writing is on the wall: U.S. fiscal dominance is waning, and rates are unlikely to retreat to 2020s lows. Investors who ignore this risk their portfolios to underperform—or worse.

• Buy TBT to profit from the Fed’s “sound money” resolve.
• Allocate to VGK to capitalize on Europe’s valuation gap and policy easing.
• Swap Treasuries for FLOT to hedge against duration risk.

The clock is ticking. With yields at inflection points and global markets primed for rotation, this is no time to sit on the sidelines.

The future belongs to those who diversify beyond borders and hedge against the inevitable. Don’t let uncertainty paralyze you—act now.