With the path to rate cuts clearer, Treasury bonds have been heading higher since the start of the summer, but they’ve taken a turn. The return of rising yields have been putting the Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV) and the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO) back into positive territory.
Yields moved higher once the U.S. presidential election results were in the books the following trading day. Capital markets are expecting that President-elect Trump’s policies will reinvigorate economic growth, potentially fueling a risk-on sentiment. In that case, more investors may be apt to put their money into equities as opposed to bonds.
“Bond yields got a boost Wednesday with the 10-year yield popping 15 basis points after Trump defeated Vice President Kamala Harris as traders believe his pro-business policies including tax cuts could spark economic growth,” reported CNBC.
However, rising yields could eventually fall as the euphoria from the post-election results subsides. Also, the Federal Reserve continues to perform a balancing act of cutting rates while keeping the economy from spinning into a recession. To that note, traders will want to be more flexible when trading Treasuries.
“The Treasury market continues to stabilize as the ‘Trump trade’ momentum recedes,” said Ian Lyngen, BMO’s head of U.S. rates, according to the CNBC report. “In keeping with the time-tested approach of ‘sell the rumor, and buy the fact’, 10-year yields have drifted back into the 4.20-4.30% range that was in place at the beginning of the week.”
Fortunately, inverse ETFs can allow traders to profit in the short term whether markets are trending higher or lower. Given the news-sensitive markets to moves by the Federal Reserve and other market forces, volatility can result. As such, inverse ETFs can help short-term traders with market flexibility.
Added Flexibility in Treasuries
When yields fall and Treasuries subsequently rise, traders can also use the Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF) and the Direxion Daily 7-10 Year Treasury Bull 3X Shares (TYD). Both funds take the opposite approach of TMV and TYO, providing added flexibility in Treasuries for traders.
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.
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