The bond market landscape of low yields and higher bond prices could be replaced with the opposite in 2020 thanks to renewed investor confidence as a result of a U.S.-China “phase one” trade deal last week. That said, if the yields on safe haven Treasury notes are heading higher, traders may want to game the moves with leveraged ETFs.
Slowing global growth and recession fears from an inverted yield curve could be dissipating, which could make the way for an even higher degree of risk-on sentiment for investors.
“We are beginning to chip away at the fear-inducing issues. Brexit is no longer a big confidence crusher, and trade is slowly going away as a worry,” said Michael Kelly, global head of multi-asset for PineBridge Investments.
In addition, rate increases by the Federal Reserve could help spur higher yields. In their latest rate policy decision, the central bank elected to stand pat on rates following three consecutive cuts.
The prospects for an about-face turn and a re-installment of the rate increases in 2018 will depend heavily on economic data—namely inflation.
Per a MarketWatch report, “Fed Chairman Jerome Powell raised the bar for an interest-rate increase last Wednesday, arguing that it would take a sustained and significant increase in inflation for a policy change. That appears to be a tall task as the Fed’s preferred measure of inflation, core personal consumption expenditures, grew year-over-year by 1.6% in October, running below the central bank’s 2% inflation target.”
here are four ETFs to trade Treasurys:
- Direxion Daily 20+ Year Treasury Bull 3X Shares (NYSEArca: TMF): seeks daily investment results, before fees and expenses, 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.
- Direxion Daily 20+ Year Treasury Bear 3X ETF (NYSEArca: TMV): 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 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.
- Direxion Daily 7-10 Year Treasury Bull 3X Shares (NYSEArca: TYD): seeks daily investment results, before fees and expenses, of 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 ten years.
- Direxion Daily 7-10 Year Treasury Bear 3X Shares (NYSEArca: 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. 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 ten years.
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