The anticipation for the first rate cut in this rate cycle keeps on building as capital markets hope to see one at least before 2024 comes to a close. Meantime, hopes for looser monetary policy can drive specific leveraged ETFs higher.
Of course, that will depend on a Federal Reserve that’s tracking inflation numbers carefully. Fed chair Jerome Powell did tell reporters that “there is a growing sense of confidence that you could move at the next meeting.”
The Fed has stood pat on rate cuts all year despite much optimism heading into 2024 that rate cuts would happen swiftly and in succession. That has yet to happen as higher-for-longer interest rates continue. Yet it hasn’t stopped the stock market from trending higher. The S&P 500 is up about 15% for the year. But bonds could be presenting an opportunity for a rally.
Right now, the debt market has been fueled by demand due to high yields in the current high interest-rate environment. Fixed income investors are looking to lock in rates before yields eventually dip from Fed rate cuts. When that happens, they can also reap the benefits of price appreciation as yields fall and bond prices climb.
When that takes place, traders can look to opportunities in 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.
Reverse Course With Inverse Options
Conversely, rate cuts come with no guarantees, as investors are finding out this year. If the economy continues to run hot, it could give the Fed further reason to pause on rate cuts, and yields could climb.
But should the Fed continue to keep rates on pause and bond prices subsequently fall, 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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