Inflation will continue to threaten anxiety for investors, but that fear can be assuaged with a pair of leveraged exchange traded funds (ETFs) from Direxion Investments.
If yields rise in concert with inflation, traders can use the Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV) to play a drop in bond prices. TMV seeks daily investment results equal to 300% of the inverse of the daily performance of the ICE U.S. Treasury 20+ Year Bond Index.
“This ETF offers 3x short leveraged exposure to the broad-based NYSE 20 Year Plus Treasury Bond Index, making it a powerful tool for investors with a bearish short-term outlook for U.S. 30 year treasuries,” an ETF Database analysis details. “An investment in leveraged debt can be a very risky one, as there are numerous factors that can converge to drastically change the returns of these products.”
As such, novice investors might want to stay away. However, for the seasoned investor, TMV could serve as an ideal inflation hedge should rates rise and push bond prices lower.
“Investing in leveraged bond ETFs requires a careful understand of the specific economy, in this case the US, and what kind of policies and regulations are currently in place and are set to be enforced in the future,” the analysis added further. “TMV can be a powerful tool for sophisticated investors, but should be avoided by those with a low risk tolerance or a buy-and-hold strategy.”
A Play on Cooling Inflation
If inflation ends up not being as high as market analysts forecast, there’s another way to play the move: the Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF). TMF seeks daily investment results of 300% of the daily performance of the ICE U.S. Treasury 20+ Year Bond Index.
The fund has been on the move higher as inflation fears start to dissipate. As such, TMF has risen 21.5% over the last few months as economic data might be signaling to the Federal Reserve that the economy isn’t overheating.
“A recent run-up in consumer prices cooled slightly in August, signaling that although inflation is higher than normal, the White House and Federal Reserve may be beginning to see the slowdown in price gains they have been hoping for,” a New York Times article said.
“Policymakers have consistently argued that a surprisingly strong burst of inflation this year has been tied to pandemic-related quirks and should prove temporary, and most economists agree that prices will climb more slowly as businesses adjust and supply chains return to normal,” the article added. “The major question hanging over the economy’s future has been how much and how quickly the jump will fade.”
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