Safe haven government debt yields are jumping. It might not be music to a bullish bond investor’s ears, but for the bears, it’s a sweet symphony.
The Federal Reserve is expected to start raising rates this year. It’s only a matter of just how hawkish the Fed wants to get in order to keep inflation in check.
“Government bond yields surged world-wide after a strong report on the U.S. labor market boosted investors’ expectations that central banks will begin steadily raising interest rates to fight inflation,” a Wall Street Journal article says.
For bond investors looking to obtain yield, now is the time to get safe haven government exposure while also getting income. In terms of price appreciation, not so much.
“The benchmark 10-year U.S. Treasury yield, which helps set borrowing costs on everything from mortgages to corporate loans, settled at 1.930%, its highest close since December 2019,” the article says further. “The 10-year German bund climbed to 0.2%, its highest level in nearly three years and further into positive territory after years below zero.”
A Bearish Option With 3x Yield
With yields pushing higher, this opens up opportunities for traders who are bearing on bond prices. For supercharged gains, one option to consider is the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO).
Since bond prices and bond yields move inversely to one another, this sets up a play for TYO. It provides a hedging option against a trader’s existing positions in equities should they experience more weakness.
TYO seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the daily performance of the ICE U.S. Treasury 7-10 Year Bond Index. The index is a market value-weighted index that includes publicly issued U.S. Treasury securities that have a remaining maturity of greater than seven years and less than or equal to 10 years.
The effect of yields is readily apparent in TYO. The fund is already up about 10% in 2022, and with rates pushing higher, more strength could be ahead.
Looking at its one-year chart with a technical overlay, momentum is one the side of TYO and the bears. The proverbial “golden cross” is the final week of January. The 50-day moving average went above the 200-day moving average, signaling strength in at least the short-term horizon.
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