Anticipation of Yields Falling Should Bring Bond Bulls Out

With capital markets eyeing the close of the first quarter of 2024, there’s much optimism heading through the rest of the year in anticipation of interest rate cuts. This should bring the bulls out who are looking to play a run-up in bond prices.

Volatility can be a trader’s friend, offering ways to play both sides of the market as trading volume increases. A Barron’s article noted that bond market activity has been especially volatile as of late as a data-centric U.S. Federal Reserve mulls when to start cutting rates.

Inflation data, as it has been the last few years, will dictate how the bond market responds. Right now, bonds are especially attractive given the current yields and the prospect of price increases when the Fed actually does cut rates.

“The current risk-reward proposition for quality bonds is especially attractive,” said Solita Marcelli, chief investment officer of the Americas for UBS Financial Services Global Wealth Management, in the Barron’s report. “In addition to appealing yields, we see the potential for capital appreciation, as we expect inflation to recede, growth to slow, and the Fed to cut rates this year.”

If more volatility is ahead, it’s an opportunity for traders to take advantage of the price fluctuations.

Options for Bond Bulls and Bears

Leveraged exchange-traded funds can give traders the option to maximize profit potential on their bullish or bearish notions on bonds. In particular, Direxion Investments offers strategic exposure to long-term and intermediate-term Treasury notes to play fluctuations in prices.

When bond prices rise, bullish options include the Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF) and the Direxion Daily 7-10 Year Treasury Bull 3X Shares (TYD). Both of these funds offer triple leverage, giving 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, while TYD seeks 300% of the daily performance of the ICE U.S. Treasury 7-10 Year Bond Index.

The Fed backing off interest rate hikes is never a 100% certainty, but should they pivot and bond prices fall, traders can also take the other side with inverse ETFs. Bearish bond traders can use the Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV) and the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO). Both funds take the other side of TMF and TYD, which makes them ideal when bond prices take a dip.

For more news, information, and analysis, visit the Leveraged & Inverse Channel.