As inflation and rising interest rate fears creep back into the capital markets, it’s making for volatility in not only the stock market, but the bond market as well. Of course, this presents opportunities for leveraged exchange traded funds (ETFs).
The U.S. Federal Reserve realizes that the fight with inflation will probably be a 12-round affair, meaning that consumers will be feeling the pangs of higher prices for quite some time. The realization of higher interest rates is translating into bond prices retreating after a recent rally.
“A reality check is hitting the bond market: The economy could be headed for a ‘no landing’ scenario, prompting the Federal Reserve to pump the brakes harder than previously anticipated,” a Barron’s article said.
“The prospect of higher interest rates—the Fed’s primary policy tool to slow economic growth and curb inflation—sent bonds into a tailspin in the past few weeks,” the article added. “A recovery could be rocky in the months ahead.”
4 Options to Trade the Fluctuating Treasury Bonds
That said, traders can take both the bullish and bearish sides of fluctuating bond prices. When bond prices rise, specifically Treasury notes, bullish options include the Direxion Daily 20-Plus Year Treasury Bull 3X Shares (TMF ) and the Direxion Daily 7-10 Year Treasury Bull 3X Shares (TYD ).
Both funds offer triple leverage, giving traders the opportunity to maximize their profits, but as such, only seasoned traders should consider these funds. TMF seeks daily investment results of 300% of the daily performance of the ICE U.S. Treasury 20+ Year Bond Index, while TYD seeks 300% of the daily performance of the ICE U.S. Treasury 7-10 Year Bond Index.
A Fed that won’t take its foot off the interest rate accelerator can apply further downward pressure on bonds. This fits right into the hands of bearish bond traders with leveraged ETFs like the Direxion Daily 20-Plus Yr Trsy Bear 3X ETF (TMV ) and the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO ) — both funds take the other side of TMF and TYD.
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