More fund managers are starting to add bonds to their portfolios again. That’s evidenced by allocations in the last few months. If this trend persists, traders will want to consider three leveraged exchange-traded funds (ETFs).
Since they move conversely with one another, high yields in the current rate environment have pushed bond prices down. But that trend could finally kick into reverse. Short-term bonds have been the default move the last few years. But long-term bonds could be staging a comeback based on recent fund activity.
“Fund managers increased their allocation to bonds this month by an average of 7 percentage points from April, according to a survey conducted by the lender, though they remain underweight overall,” a Yahoo Finance report said. The report noted that long-term bonds in particular have been generating more interest.
If demand for long bonds or bonds in general continues, traders will want to use leveraged ETFs. Two such funds are the Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF) and the Direxion Daily 7-10 Year Treasury Bull 3X Shares (TYD). Both funds offer triple leverage. That gives traders the opportunity to maximize their profits. But only seasoned traders should consider these funds. TMF seeks daily investment results of 300% of the daily performance of the ICE U.S. Treasury 20+ Year Bond Index. TYD seeks 300% of the daily performance of the ICE U.S. Treasury 7-10 Year Bond Index.
China Goes Long
Interest in long-term bonds could be met further by issuance from the world’s second largest economy. China is introducing ultra-long bonds to raise more cash as it continues to work its way out of an economic slump, although there are signs of improvement, or at best, resilience.
“China on Friday sold 30-year treasury bonds as part of a massive 1 trillion yuan (US$138 billion) sale of ultra-long bonds aimed at supporting the world’s second-biggest economy at a time when local government coffers have been drained by the pandemic and by the collapse of the real estate bubble,” reported Radio Free Asia.
Though not a direct play on bonds, signs of an improving economy and government bond offerings with long maturities could continue to fuel the Direxion Daily FTSE China Bull 3X ETF (YINN). The fund is up almost 70% year to date. It could have more room to run if more signs of improvement continue to reveal themselves in the country’s economic data.
YINN tracks the FTSE China 50 Index (TXIN0UNU) with 300% exposure. This index consists of China’s 50 largest and most liquid public companies currently trading on the Hong Kong Stock Exchange as determined by FTSE/Russell.
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