Fed Easing Could Heat These ETFs This Summer
May's inflation data could bring Treasury bulls back into the fray. If the Fed has the signal they need to start easing monetary policy, then it could bring up the Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF) and the Direxion Daily 7-10 Year Treasury Bull 3X Shares (TYD).
TMF: Not Favorable In Fat-Tailed Conflict Environment
TMF is correlated with shorter-duration ETFs, meaning that it's affected by what's happening to oil prices, inflation outlook and conflict in the Middle East. Long-term risks include concerns over the USD's reserve currency status, which is reflected in long-term yields. Given heightened geopolitical risks and uncertain rate expectations, I do not view duration bets like TMF as attractive at this time.
Heavy Market Volatility Creates Opportunities for Treasuries
Tariffs are roiling the major stock market indexes with volatility. So investors have been pouring into bonds to escape the turmoil.
TMF: No Silver Lining
President Trump's tariff policy risks triggering a severe recession or depression, with potential global economic fallout and retaliatory actions from trading partners. The tariffs are essentially a massive tax hike, affecting everyday items and potentially leading to significant economic downturns worse than the 2008 crisis. Economic uncertainty, market volatility, and recession risks are spiking, with equity prices likely to decline significantly as P/E ratios adjust to lower earnings.
Direxion Debuts New Single-Stock ETFs for Eli Lilly & Palo Alto
On Wednesday, Direxion expanded its suite of leveraged and inverse ETF products with the launch of four new funds. Each of the new Direxion ETFs offers leveraged or inverse exposure to a single stock's daily price performance.
TMF: Levered Bet On Duration
Direxion Daily 20+ Year Treasury Bull 3X Shares ETF offers 3x leveraged returns on long-term treasury bonds, making it highly sensitive to interest rate changes. Investor sentiment may be becoming too hawkish on Fed policy, with only 1 rate cut expected in 2025. However, the wildcard is President Trump's policies. If he implements his campaign promises of tariffs and tax cuts, inflation and budget deficits may soar, which could lead to higher yields.
Rising Yields Bring Inverse Treasury ETFs Back to Positive Territory
With the path to rate cuts clearer, Treasury bonds have been heading higher since the start of the summer, but they've taken a turn. The return of rising yields have been putting the Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV) and the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO) back into positive territory.
TMF: Not Suited For The Long Term, But Ideal For A Trading Strategy
TMF, with its 3x leverage, is the most volatile and performs best for short-term trades, despite its risks over long-term holding. The recent yield curve shifts and increased volatility could present a good trading opportunity, making TMF an attractive choice for short-term positions. Given the structure of the TMF ETF, effective risk management is crucial; consider integrating strategies to mitigate potential capital losses, and avoid including it in a long-term portfolio.
Steepening Yield Curve Pushes These 2 ETFs Higher
As the U.S. Federal Reserve starts to ease monetary policy, the yield curve is starting to steepen after a couple of years inverted. In turn, this is pushing a pair of leveraged exchange traded funds (ETFs) from Direxion higher.
Buying TMF On The Sell The News Rate Cut Event
The Federal Reserve's 50 basis point rate cut led to a sell-off in Treasuries, creating a short-term buying opportunity for investors. TMF offers 3x leveraged exposure to long-term Treasuries, which should benefit from anticipated further rate cuts in 2024 and 2025. Despite risks like interest rate and duration risk, TMF is positioned to perform well in the near term due to expected rate declines.
Expected Rate Cuts Can Keep Pushing These ETFs Higher
The expectation of interest rate cuts can keep pushing bond ETFs higher, giving traders options in bullish leveraged options for profit maximization. In the meantime, more investors are adding bonds to their portfolios, especially after a volatile August.
TMF's Leveraged Exposure To Long-Term Treasuries Will Benefit From Rate Cuts
Recent market conditions have sparked interest in long-term Treasury bonds due to probable rate cuts by the Federal Reserve. Treasuries provide steady income, a hedge against stock market drops, and offer safety backed by the U.S. government. The Direxion Daily 20+ Year Treasury Bear 3X Shares ETF (TMF) may see gains as Treasuries appreciate with probable rate cuts and possible market uncertainties.
