Inflation Fears and Rising Yields Play Right Into This ETF

Investors might fret over inflation and rising yields, but for inverse traders, it’s a good sign to play the Direxion Daily 7-10 Year Treasury Bull 3X Shares (TYD).

Last week, the Labor Department revealed that the unemployment rate fell to 5.4%, re-invigorating the equities market. In turn, yields rose as investors shied away from bonds and dialed up the risk despite additional headwinds like Covid-19 variants.

“Despite fears about the spread of the Delta variant of Covid-19, which has rattled bonds and equities in recent weeks, hiring for the month of July increased, the Labor Department reported Friday,” a CNBC report said. “The economy added 943,000 nonfarm payrolls and the unemployment rate dropped to 5.4%, according to the department’s Bureau of Labor Statistics.”

TYD has been feeding off the bearishness in bond prices the past few months as yields have been ticking higher and higher. This has resulted in the the fund gaining about 7%.

The fund seeks daily investment results, before fees and expenses, of 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 ten years.

TYD Chart

A Volatile Recovery

The path to recovery following early 2020’s decline has been a rocky ride just over halfway through 2021.

As mentioned, inflation fears and new Covid variants sparked fear that the recovery would be a long, winding road. Nonetheless, the latest unemployment figures underscore solid economic fundamentals heading into the remainder of 2021.

“The nonfarm payroll, unemployment, and hourly earnings numbers remain trapped in the in-between circumstances of a strong recovery, driving increased demand for workers,” said Jason Pride, Chief Investment Officer of Private Wealth at Glenmede, in the CNBC report. “The still above-normal unemployment rate and below-normal participation rate point to the lingering mismatch between job openings provided by a recovering economy and the ability and willingness to fill those rolls. Such a gap should close over time but still may take months to find its way to normal levels.”

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