Fed Protection With a Leveraged Bond ETF

Ten-year Treasury yields tumbled by nearly 4% Thursday, but that is an almost minor bump in the road for yields on the benchmark U.S. government bond, which are still up 13.7% over the past 90 days.

With that yield spike, it is not surprising that investors would want to flee longer-dated bond exchange traded funds. They are doing just that. For the week ended June 8, investors pulled nearly $319 from the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT), making TLT the seventh-worst ETF in terms of lost assets for that period. Four of the 10 worst ETFs outflows for that period were fixed income funds.

However, these are go-go days for bearish bond ETFs, including the Direxion Daily 20-Year Treasury Bear 3X (NYSEArca: TMV). TMV, which attempts to deliver triple the daily inverse returns of the NYSE Current 20-Year U.S. Treasury Index, is still up almost 18% over the past 90 days even with Thursday’s loss of more than 5%. [Bearish Bond ETFs Back in Style]

The ETF entered Thursday as Direxion’s top-performing bearish fund on a month-to-date basis and its technicals are improving, auguring more downside for government bonds as the Federal Reserve inches closer to raising rates.

“The 10-year note traded above 2.4 percent this month, the highest level since September 2014. We are seeing a short term breakout in TMV here, with the price sitting above resistance levels and RSI above 60, at 63.89 with higher trajectory. MACD is well above the signal line and slightly positive, which may indicate support for a continued short-term upward trend,” according to Direxion.

Investors are responding. Over the 30 days ending June 10, the average daily creation value in TMV was over $4 million, according to Direxion data, indicating risk-tolerant traders are gobbling shares of TMV. Since the start of the current quarter, investors have put $134.5 million in new capital to work with TMV.