Recession fears and ongoing banking woes are adding more volatility to the major stock market indexes, paving the way for bond investors to maintain their bullishness.
It appears the dust has yet to settle with the banking system, given the recent spate of bank rescues in the past couple months. To add to that, fears of a recession continue to linger as investors keep a close eye on the Federal Reserve and when it might eventually scale back on hiking interest rates.
“We think that the concerns around the bank sector, combined with uneasiness regarding the debt ceiling — and most importantly, apprehension over the uncertain future Fed rate policy stance — are all contributing to this risk off sentiment. So in an area like the bank sector that already was under stress, we’re also seeing greater unease because of these other contributing factors,” said Greg Bassuk, CEO of AXS Investments, in a CNBC report.
Lever Up on Government Bond Prices
As recession fears and doubts in the financial system persist, more investors can seek the safety of bonds. This could cause a short-term flight, opening similarly short-term opportunities for traders in products like leveraged exchange traded funds (ETFs).
“Bond investors, fearing a recession is around the corner and preparing for an end of the Federal Reserve’s tightening cycle, have embraced the safety of U.S. Treasuries and shed risky exposures in investment grade and high yield credit,” Reuters reported.
One pair of funds to consider is the Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF) and the Direxion Daily 7-10 Year Treasury Bull 3X Shares (TYD). As mentioned in their names, both funds offer triple leverage, giving traders the opportunity to maximize their profits, but as such, 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. The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments and securities of the index, ETFs that track the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the 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 20 years.
Likewise, TYD seeks 300% 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.
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