Following the Federal Reserve interest rate decision on Wednesday to raise rates another 25 basis points, a flight to long duration government debt was apparent with Direxion Daily 20+ Year Treasury Bull 3X ETF (NYSEArca: TMF) gaining as much as 4 percent.
As widely expected by the capital markets, the Federal Reserve raised interest rates to make it a fourth and final rate hike for 2018. The Fed proceeded with their rate-hiking policy despite the latest rumblings in the stock markets. The Dow Jones Industrial Average has lost over 3 percent year-to-date, while the S&P 500 has lost 3.79 percent.
Meanwhile, the tech-heavy Nasdaq Composite has lost close to 14 percent within the last three months of what’s been a volatile market. The Dow and S&P were not immune to the market fluctuations with 9.37 percent and 11.57 percent lost, respectively, in the last three months.
Analysts have been citing rising interest rates as one of the causes for the latest declines in U.S. equities.
Related: Fed Chair Sees ‘Growth Moderating Ahead’
TMF Moves Past 200-Day MA
In the past month, TMF has risen past its 200-day moving average, supporting the risk-off sentiment that has taken hold of the capital markets with fears of a global economic slowdown permeating investors’ psyche. It’s certainly welcome news for the bond markets as inflows of capital flood the fixed-income space, but to equities investors, it could be a sign of more pain to come.
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TMF seeks daily investment results worth 300% of the daily performance of the ICE U.S. Treasury 20+ Year Bond Index. The fund invests at least 80% of its net assets in securities of the index and 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.
Fed Chair Sees Moderating Growth
Following the decision, Federal Reserve Chairman Jerome Powell communicated that the central bank sees “growth moderating ahead.”
The markets have certainly taken a turn for the worst since September’s rate hike, and the Fed Chair did indeed recognize the change. Rather than completely ignore the latest market oscillations, Powell took these factors into account at the post-rate-hike presser, saying that “cross currents have emerged” and “financial market volatility” has increased.
In fact, Powell acknowledged the global growth concerns that have been reverberating through the capital markets. With the trade war between the United States and China ongoing despite the latest tariff ceasefire, global economies are beginning to show signs of retreating.
“Growth in the economies have moderated around the world,” said Powell, as Europe and China recently released weaker economic data.
As concerns in the markets continue to mount, a flight to long-term Treasuries could see TMF continue to benefit.
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