The ongoing narrative in the capital markets is rising inflation, and investors may want to consider Direxion’s ETFs that drive bond prices down.
Why play on the fall in bond prices? As interest rates rise and other high yielding assets become more favorable, the liking for bonds with lower coupon rates deteriorates.
In turn, bond issuers with these lower rates will lower bond prices in order to compete with other higher yielding assets. For bond funds like ETFs, for example, the problem could be exacerbated.
“As if rising interest rates weren’t bad enough for bonds, if you’re a shareholder in a bond fund for a period like this, your pain will likely be greater than an investor invested in a bond fund. individual obligation, ”wrote Mike Patton in a Forbes article. “For example, a given bond fund will hold hundreds or even several thousand individual bonds. When interest rates rise, to avoid further losses, shareholders of a bond fund will liquidate their shares.
“When this happens, the fund manager may be forced to sell bonds prematurely in order to raise enough cash to meet his redemption requests,” Patton wrote. “This can have a destructive effect on the average price of a bond fund, called its net asset value (NAV). Therefore, bond funds present an additional risk during periods of rising interest rates, called repayment risk. The risk of redemption exaggerates the pain for those who remain in the fund. “
Two options to consider
A pair of moves to consider are the Direxion Daily 20+ Year Trsy Bear 3X ETF (TMV) and the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO). With triple leverage, only seasoned investors should apply.
TMV seeks daily investment results before fees and expenses of 300% of the inverse of the daily performance of the ICE US Treasury 20+ Year Bond Index. TMV invests in swap agreements, futures, 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 debt securities issued by the US Treasury with a residual maturity of more than 20 years.
TYO seeks daily investment results before fees and expenses equal to 300% of the inverse (or the reverse) of the daily performance of the ICE US Treasury 7-10 Year Bond Index. The Index is a market value weighted index that includes publicly issued US Treasury securities with a remaining maturity greater than seven years and less than or equal to ten years.
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