With the notion that rates will eventually rise given the inflationary pressures on the economy, it’s not a surprise that the Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV ) is up over 30% year-to-date.
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. TMV 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.
“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,” 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.”
Do Inflation Risks Loom Amid a Strong Jobs Report?
The risk of inflation could be looming higher after a recent strong jobs report, “but not enough for the labor market to keep pace with an overall economy that is heating up as the pandemic continues to ease,” according to a Wall Street Journal report. Payrolls grew by 559,000 during the month of May, which was up from the 278,000 in April.
“The Fed’s probable course remains that sometime this summer it will start talking about reducing asset purchases and that some time after that it will begin the months long process of bringing them down to zero,” another Wall Street Journal report said. “After that it will finally begin to gradually raise rates. There are things that could change that, like employment recovering surprisingly quickly, but grumbling about how hard it is to hire a dishwasher isn’t one of them.”
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