Benchmark Treasury yields retreated today as government debt issues took a reprieve from their ascent last week, which put downward pressure on U.S. equities. However, certain leveraged bear and inverse exchange-traded products (ETPs) have been benefitting from the rise in yields depressing not just bond prices, but also gold and silver.
The strength in the greenback combined with rising rates have already pumped the brakes on gold prices rising, but now rising yields have also suppressed any price increases in the precious metal.
“Gold’s weakness is not just due to the stronger dollar, but the rising yields, too,” said Fawad Razaqzada, technical analyst at Forex.com. “Together, these factors are proving to be a toxic mix for the noninterest-bearing and buck-denominated commodity.”
“Unless at least one of these influences are not put right, gold will struggle to sustain any rally,” added Razagzada. “In the short term, the path of least resistance would remain to the south so long as that $1,205-15 resistance area remains intact.”
This spike in U.S. government debt yields has certainly benefitted these five ETPs with their strong year-to-date performances.
1. Direxion Daily Gold Miners Bear 3X ETF (NYSEArca: DUST): 59.65% YTD
DTYS seeks daily investment results that equal 300% of the inverse of the daily performance of the NYSE Arca Gold Miners Index. DTYS invests in swap agreements, futures contracts, short positions or other financial instruments that, in combination, provide inverse or short leveraged exposure to the index, which is a modified market capitalization weighted index comprised of publicly traded companies that operate globally in both developed and emerging markets, and are involved primarily in mining for gold and, to a lesser extent, in mining for silver.
2. VelocityShares 3x Inverse Silver ETN (NasdaqGM: DSLV): 50.64% YTD
3. Barclays Inverse US Treasury Aggregate ETN (NasdaqGM: TAPR): 45.84% YTD
TAPR seeks a return linked to the performance of the Barclays Inverse US Treasury Futures Aggregate Index™. The index employs a strategy that tracks the sum of the returns of periodically rebalanced short positions in equal face values of each of the 2-year, 5-year, 10-year, long-bond and ultra-long U.S. Treasury futures contracts. The index contains an equal synthetic short position in each Treasury futures contract that is either the Treasury futures contract closest to expiration or the next Treasury futures contract scheduled to expire immediately following the front contract.
4. iPath US Treasury Long Bond Bear ETN (NasdaqGM: DLBS): 45.59% YTD
DLBS seeks to provide investors with inverse exposure to the Barclays Long Bond US Treasury Futures Targeted Exposure Index™. The index is designed to decrease in response to an increase in the long-dated Treasury bond yields and to increase in response to a decrease in long-dated Treasury bond yields. The index targets a fixed level of sensitivity to changes in the yield of the current “cheapest-to-deliver” bond underlying the relevant long-dated Treasury futures contract at a given point in time.
5. Direxion Daily Jr Gld Mnrs Bear 3X ETF (NYSEArca: JDST): 45.05% YTD
JDST seeks daily investment results that are worth 300% of the inverse (or opposite) of the daily performance of the MVIS Global Junior Gold Miners Index. JDST invests in swap agreements, futures contracts, short positions or other financial instruments that, in combination, provide inverse (opposite) or short leveraged exposure to the index, which tracks the performance of foreign and domestic micro-, small- and mid-capitalization companies.
“The dollar strength is clearly a key factor on the price of gold still, with the negative correlation at play. However, with Treasury yields blowing higher, there is an added market fear factor that means that gold gets a degree of safe haven bid as well. This may help to restrict a gold selloff,” said Richard Perry, market analyst at Hantec.
For more trends in fixed income, visit the Fixed Income Channel.