While the U.S. economy continues its forward momentum with tailwinds from a strong stock market that has already seen major indexes like the S&P 500 reach record levels, the Federal Reserve is primed to continue hiking the federal funds rate, which is a boon to the Direxion Daily 20+ Yr Trsy Bear 3X ETF (NYSEArca: 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.
Based on the latest CNBC Fed Survey, a rate hike in September is all but certain at 98% and the chances of another hike in December is just as strong at 96%. The Fed’s monetary policy meeting began today, and the common notion among the capital markets is that more rate hikes are to come, which could put downward pressure on Treasury debt prices as yields go higher.
“Fed funds increases in September and December are as certain as certain can be,” John Donaldson, director of fixed income at Haverford Trust, wrote in his response to the survey. “Their real challenge starts after the first increase in 2019, which will bring the rate to 2.75 percent, or finally back to even to inflation.”
Source: tradingeconomics.com
In addition, survey respondents forecasted an increase of 50 more basis points in 2019, bringing the federal funds rate to a range of 2.75 to 3%. All in all, the average of respondents see the federal funds rate at 3.3% once the Federal Reserve is done hiking rates.
TMV has already risen about 1.2% the past couple of days ahead of the interest rate decision on Wednesday. Year-to-date, TMV has generated 8.99% as well as 7.17% within the past year.
“The market is fearful that dovish hikes are a thing of the past … Markets are finally respecting the Fed, and are starting to think that these guys mean business,” said George Goncalves, head of fixed-income strategy at Nomura Securities International.
“I’ll be watching to see if the Fed’s happy with the market’s reaction (to its hiking cycle),” he added.
For more trends in fixed income, visit the Rising Rates Channel.