Rising yields are putting downward pressure on bonds. These yields fit right into the hands of bearish bond traders with leveraged ETFs like the Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV) and the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO).
As a global vaccine rollout continues and the economy starts to exhibit signs of healing, fears of inflation could be ahead. A confluence of factors tamping down bond prices is exactly what the bears would love to see.
“Underpinning the bond-fund pain is the building consensus that price pressures are poised to lurch higher,” a Yahoo! Finance article said. “Covid-19 vaccine rollouts combined with the prospect of further fiscal and monetary stimulus have triggered bets on higher inflation, threatening to erode the value of future returns.”
TMV seeks daily investment results before fees and expenses of 300% of the inverse of the daily performance of the ICE U.S. Treasury 20+ Year Bond Index. TMV invests in swap agreements, futures contracts, short positions, or other financial instruments that provide inverse or short leveraged exposure to the index, which is a market value weighted index that includes publicly issued U.S. Treasury debt securities that have a remaining maturity of greater than 20 years.
TYO seeks daily investment results before fees and expenses of 300% of the inverse (or opposite) 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 ten years.
An Outpouring of Fund Flows for Bond ETFs
TMV has been up 40% in the past few months, underscoring the expectation that bond prices will keep falling the longer investors go out on the yield curve. The exodus from bond ETFs was apparent as “nearly $800 million exited from U.S. fixed-income funds last week as benchmark 10-year Treasury yields breached 1.3% for the first time since last March,” the Yahoo! Finance article noted further.
“Flows follow returns,” said Michael Contopoulos, director of fixed income and portfolio manager at Richard Bernstein Advisors LLC. “With the increase in Treasury yields, we’ve had a very poor period of total returns in investment-grade credit and government bonds.”
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