The expectation of interest rate cuts can keep pushing bond ETFs higher, giving traders options in bullish leveraged options for profit maximization.
In the meantime, more investors are adding bonds to their portfolios, especially after a volatile August. Investors before the Aug. 5 sell-off were primarily looking to add bonds for their yield benefits ahead of rate cuts. Now, a pronounced move to safe haven assets like bonds is helping to drive demand. The forthcoming election should also add a spark of volatility, potentially pushing more investors to the safety of bonds.
“Investors are pouring cash into US government bond exchange traded funds as bond fever spreads through the market ahead of the Federal Reserve’s expected interest rate cut in September,” confirmed the Financial Times, adding that a “slowdown in the US economy has prompted investors to seek out the safety of fixed income amid volatile moves in US stocks.”
Money managers, and hedge funds in particular, have been adding more bonds as of late, specifically bond ETFs. However, it’s not just isolated to them, as larger institutional investors and retail investors are allocating to bonds as well.
“The demand for ETFs also points to enthusiasm for bonds spreading beyond big money managers and hedge funds, with retail and institutional investors starting to move back into fixed income,” FT confirmed.
4 Ways to Trade Treasurys
Rate cuts could in turn push yields down and bond prices higher. This opens the door for traders to use 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. TYD seeks 300% of the daily performance of the ICE U.S. Treasury 7-10 Year Bond Index.
However, if the Fed continues to keep rates on pause and bond prices subsequently fall on the news, 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.
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