Inflation fears took a step back this week, but the threat of rising Treasury yields has certainly not evaporated. If that’s the case, it could help to be a bear on benchmark Treasury notes using the Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV).
TMV seeks daily investment results before fees and expenses of 300% of the inverse of the daily performance of the ICE U.S. Treasury 20+ Year Bond Index. TMV invests in swap agreements, futures contracts, short positions, or other financial instruments that provide inverse or short leveraged exposure to the index, which is a market value weighted index that includes publicly issued U.S. Treasury debt securities that have a remaining maturity of greater than 20 years.
“This ETF offers 3x short leveraged exposure to the broad-based NYSE 20 Year Plus Treasury Bond Index, making it a powerful tool for investors with a bearish short-term outlook for U.S. 30 year treasuries,” ETF Database analysis details. “An investment in leveraged debt can be a very risky one, as there are numerous factors that can converge to drastically change the returns of these products.”
Novice investors need not apply, however. Leveraged ETFs can expose newbies to portfolio-busting risk.
“Investing in leveraged bond ETFs requires a careful understand of the specific economy, in this case the US, and what kind of policies and regulations are currently in place and are set to be enforced in the future,” the analysis added further. “TMV can be a powerful tool for sophisticated investors, but should be avoided by those with a low risk tolerance or a buy-and-hold strategy.”
The Great Debate: Are Yields Heading Higher?
The benchmark 10-year Treasury hit a low during the middle of the week, but do signs still point to higher yields? Economic forecaster Lakshman Achuthan certainly believes so.
“You have an upturn call just as we had in the summer of ’16, which is the left-hand side of the chart,” said Achuthan. “You can see those have some staying power, and regardless of the headline narratives, they persist.”
“The 10-year yield has actually tripled from really low levels since last summer,” he added. “To put it in perspective, that’s a bigger move than the 2013 taper tantrum.”
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