Rising inflation coupled with the Federal Reserve’s move to tighten monetary policy and raise rates is causing benchmark Treasury yields to jump lately.

As such, the Dow Jones Industrial Average fell over 500 points during Tuesday’s trading session after the Martin Luther King Jr. holiday. Inflation and rising rates are adding to a wall of worry for investors that they are already trying to climb amid rising COVID cases with the new Omicron variant.

“The culprit this morning (January 17), as it seems to be every day, is interest rates as the yield on the 10-year tops 1.8% and the 2-year yield moved back over 1%,” said Paul Hickey of Bespoke Investment Group.

“Wall Street has been under pressures too thanks to Fed tightening worries, the jump in rates and worries over slowing growth,” analysts at Action Economics said.

A Pair of Inverse Opportunities in Treasury Yields

As benchmark yields push higher, it does open up opportunities for bearish trades in bond prices. Yields move conversely with prices, so as Treasury yields push higher, traders can use inverse plays on the bond prices for potential gains.

One place to start is on the shorter end of the yield curve with the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO). TYO seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the daily performance of the ICE U.S. Treasury 7-10 Year Bond Index, which 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.

On the longer end of the yield curve, there’s the Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV). TMV seeks daily investment results equal to 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.

Both funds are up to start the year, with TYO up 9% while TMV is up 17%. If this trend persists, traders can continue to scalp profits from both funds until they reverse course.TYO Chart

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