Bond investors have been better days. With yields climbing, interest rates rising, and inflation, the pain could continue, but that translates into strategic bearish opportunities for traders with inverse exchange-traded funds (ETFs).
Benchmark Treasury yields have been rising, including the 10-year yield that reached a three-year high on Wednesday. Furthermore, the U.S. Federal Reserve said it planned to reduce its bond holdings and institute more rate hikes when it released its minutes.
“Many participants noted that— with inflation well above the Committee’s objective, inflationary risks to the upside, and the federal funds rate well below participants’ estimates of its longer-run level — they would have preferred a 50 basis point increase in the target range for the federal funds rate at this meeting,” the minutes said.
Since bond prices and bond yields move inversely to one another, this sets up a play for bearish bond prices. It provides a hedging option against a trader’s existing positions in equities should they experience more weakness.
Two Ways To Be A Bear
One way to get capitalize on bearish bond prices is the Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV), which seeks daily investment results equal to 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.
“This ETF offers 3x short leveraged exposure to the broad-based NYSE 20 Year Plus Treasury Bond Index, making it a powerful tool for investors with a bearish short-term outlook for U.S. 30 year treasuries,” ETF Database analysis details. “An investment in leveraged debt can be a very risky one, as there are numerous factors that can converge to drastically change the returns of these products.”
Another option for shorter duration Treasury movements downward is the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO), which 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 10 years.
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