3 Bear ETFs to Consider as Treasury Yields Climb

Increased optimism in rate cuts may be slowly dissipating as the economy continues to run hot and inflation remains sticky. That opens opportunities in bearish exchange-traded funds (ETFs) as investors continue hoping for a rate cut that may not come as quickly as they had hoped for.

The S&P 500 is up 10% for the year, largely fueled by rate cut expectations that haven’t receded just yet. More recently, however, rising Treasury yields have caused increased concerns that inflation may not be abating despite the Federal Reserve’s best efforts to reach its 2% target rate.

Previously, a confluence of factors have overshadowed these concerns. But as yields rise, worry may be creeping in as investors reconsider whether the rising stock market could reach a point of exorbitance. In turn, volatility is returning to the stock market as the Cboe Volatility Index (VIX) is up 15% for the year.

“So far, a resilient economy, robust corporate earnings and excitement over artificial intelligence have helped stocks largely shrug off rising yields this year,” a Reuters report said. “Some investors worry, however, that elevated valuations could make equities more vulnerable if rates keep climbing. Besides raising the cost of capital for companies and households, higher yields can increase the appeal of ‘risk-free’ Treasury bonds compared to equities.”

Of course, when volatility rises, that could open the door for potential trades that can profit off the recent market fluctuations. In particular, short-term market corrections can allow traders to take advantage of bearish ETFs. For the bolder bears, there are also leveraged inverse ETFs to consider.

3 ETFs to Consider in the Interim

As market news continues to center around the higher-for-longer narrative, rising yields can trigger downward pressure on Treasury prices. In turn, that offers opportunities in trading bearish ETFs like the Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV) and the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO). The former is up over 20% for the year, while the latter is up almost 10%.

When news of rising yields negatively affects the S&P 500 as it has in past trading sessions, bearish opportunities in the short-term exist. That said, traders maximize profits using the Direxion Daily S&P 500 Bear 3X ETF (SPXS). This fund seeks daily investment results equal to 300% of the inverse of the daily performance of the S&P 500 Index.

TMV Chart

TMV data by YCharts

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