Rising Treasury Yields Push These Inverse ETFs Higher

Bullish bond investors are having to hear the higher-for-longer interest rates narrative longer than they initially expected heading into 2024. Rising Treasury yields are keeping bond prices down, but in turn, pushing inverse exchange traded funds (ETFs) higher.

“The Dow Jones Industrial Average ended higher and Treasury yields hit new five-month highs after Federal Reserve Chair Jerome Powell suggested that the central bank would likely need to wait longer to cut interest rates than it had previously anticipated,” the Wall Street Journal reported.

The prime measure of volatility, the CBOE Volatility Index (VIX), has risen 45% this year, adding market fluctuations in both equities and bonds. It didn’t help that the consumer price index (CPI) gave little indication to the U.S. Federal Reserve that inflation is progressing towards their 2% target rate.

“Stocks and bonds have both hit a rough patch ever since the Labor Department reported last week that the consumer-price index rose more than expected in March, marking the third consecutive month of firmer-than-expected inflation data,” the report added. “That has dented investors’ conviction that interest rates would come down later in the year.”

With volatility comes opportunity and in the current market environment, inverse ETFs like the Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV) and the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO). have been prospering. The former is up almost 40% for the year while the latter is close to an 18% year-to-date gain. TMV seeks daily investment results of 300% of the daily inverse performance of the ICE U.S. Treasury 20+ Year Bond Index, while TYD seeks 300% of the daily inverse performance of the ICE U.S. Treasury 7-10 Year Bond Index.

TMV Chart

TMV data by YCharts

More Time Before Rate Cuts

The capital markets were reigniting their optimism for rate cuts in recent months, giving both the equities and bond market something to cheer about. The Fed has stood pat on interest rates, opting to take a measured approach to rate cuts as econometric data hasn’t quite given them the green light just yet.

In the meantime, the higher-for-longer narrative seems to be prevailing.

Speaking at a conference Tuesday, however, Powell said that recent data ‘indicate that it is likely to take longer than expected to achieve that confidence’ and that current policies need ‘further time to work,'” the WSJ report added further.

If that’s the case, then inverse ETFs like TMV and TYO offer the tactical edge traders are looking for to profit in a volatile market.

For more news, information, and analysis, visit the Leveraged & Inverse Channel.