Rising yields have undoubtedly done a number on bond prices, but they open up bearish opportunities in certain inverse leverage exchange traded funds (ETFs).
With the S&P 500 Bond index turning negative for the year, bullish bond investors aren’t the only one feeling the pangs of the current macroeconomic environment. Rising yields are also translating to higher borrowing costs, affecting consumers’ ability to borrow money for high-ticket retail items.
“Bond yields, which impact borrowing costs for all kinds of loan products, moved higher this week as investors fretted over higher-for-longer interest rates,” Yahoo! Finance reported. “After notching a 16-year-record earlier this month, the yield on the 10-year Treasury bond continued to surge on Thursday, rising to 4.958%.”
As mentioned, this is affecting consumers’ ability to purchase high-ticket items. Among those items are real estate and cars, casting doubt on whether prospective borrowers want to take on loans with elevated interest rates.
“When 30-year mortgages and car loans cost you 8 percent it will impact consumer behavior,” said Blackstone President Jonathan Gray in the Financial Times. “Growth has been remarkably resilient, but if you keep policy this tight, this long, invariably you will cause the economy to slow down.”
Less demand for real estate due to higher rates can open an opportunity in the (DRV ). The fund seeks daily investment results equaling to 300% of the performance of the Real Estate Select Sector Index, which includes securities of companies from the following industries: real estate management, real estate development, and real estate investment trusts (REITs), excluding mortgage REITs.
Get Bearish on Bonds
An obvious play is to get bearish on bonds, and Direxion Investments offers a pair of inverse ETFs to consider. One is the Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV ) for the long end of the yield curve, and the other is the shorter-termed Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO )
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. The fund 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.
TYO seeks daily investment results before fees and expenses of 300% of the inverse (or opposite) of the daily performance of the ICE U.S. Treasury 7-10 Year Bond Index. The index is a market-value-weighted one that includes publicly issued U.S. Treasury securities that have a remaining maturity of greater than seven years and less than or equal to 10 years.
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