Light at the end of the rate-cut tunnel got a little bit brighter after April showed slower job growth. That injected bullishness back in Treasuries, opening the pathways for traders to play leveraged exchange-traded funds (ETFs), namely the Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF) and the Direxion Daily 7-10 Year Treasury Bull 3X Shares (TYD).
Treasury yields have been spiking in the first quarter of 2024 as the higher-for-longer interest rate narrative brought out the bond bears. A data-dependent Federal Reserve keep interest rates unchanged. But it acknowledged that it doesn’t foresee anymore rate hikes, offering a glimmer of hope for potential rate cuts by the end of the year.
Slower-than-expected job growth in April brought the bulls back in both equities and bonds as capital markets get deeper into the second quarter.
“U.S. job growth slowed more than expected in April and annual wage gains cooled, signs of a looser labor market which are good news for markets and the Federal Reserve that will likely require more such signals before pivoting from a higher for longer policy,” reported Reuters.
“Market response is a sigh of relief,” said Timothy Chubb, chief investment officer at Girard. It was important to see wage growth moderate and not accelerate especially in the context of the inflation story. “It’s too soon to price in more rate cuts. One number doesn’t make a trend. Overall, the Fed is getting the evidence it needs.”
Lever Up Treasuries Bullishness
As mentioned, with yields falling — and, conversely, prices rising — it opens up bullish opportunities for TMF and TYD. Both funds can play off traders’ bullish notions if they foresee Treasury prices recovering further, especially if the Fed finally institutes rate cuts.
As mentioned, both funds offer triple leverage, giving traders the opportunity to maximize their profits. But as such, 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. 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.
Likewise, TYD seeks 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 10 years.
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