The rally in bond prices appears to be short-lived as yields start to climb again. This opens the door for traders to take advantage of bearish bond prices as central banks around the world continue to raise rates to control inflation.
The European Central Bank (ECB) has pushed rates higher recently in a bid to rein in inflation, and US Federal Reserve Chairman Jerome Powell has warned of more ‘pains’ to come as the rise consumer prices continue. Additionally, the Fed’s Beige Book noted that inflation may be moderating but is still relatively high, while weak US growth and a weakening housing market may continue to weigh on the economy.
“So far, we have raised the policy rate quickly to the peak of the previous cycle, and the policy rate will need to rise further,” Federal Reserve Vice Chairman Lael Brainard said in a CNBC report.
2 ETFs with additional leverage
As mentioned, soaring bond prices open up opportunities for bearish bond traders. For options in leveraged exchange-traded funds (ETFs), consider Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV) and the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO).
TMV targets 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 publicly issued US Treasury debt securities with residual maturities greater than 20 years.
TYO targets daily investment results before fees and expenses of 300% of the inverse (or opposite) 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 residual maturities greater than seven years and less than or equal to 10 years.
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