Inverse Bond Fund in a Powerful Bull Market

Direxion Daily 20+ Year Treasury Bear 3X Shares (TMV) — This fund seeks daily investment results of 300% of the inverse of the performance of the NYSE 20-Year Plus Treasury Bond Index. 

The price of U.S. Treasury bonds falls when the Federal Reserve increases interest rates, and this ETF could rapidly appreciate when the Fed “tapers” its QE policies. Since history has shown that it is usually better not to fight the Fed, this appears to be an investment that could offset the negative impact of holding bonds.

The Trade of the Day recommended TMV on June 20, at $64.39, as a trade with a target of $75. We recommended it again on July 15, at $68.36. 

On Tuesday, TMV opened at $71.84 on a continuation gap, up from Monday’s close at $69.57. It closed at $72.44, and the nearly $3 pop was the result of a 1-11/32 fall in the 30-year bond. Traders attributed the fall to a better outlook for Europe and a flow of funds in that direction. Little mention was made of the Fed tapering bond buying. 

This ETF is in a powerful bull market, i.e., bond prices are falling and yields are rising. Therefore, it is no longer possible to render a precise target, but higher prices appear likely.

Longer-term buyers may want to revert to the less volatile, unleveraged ProShares Short 20+ Year Treasury (TBF) as a hedge against a bond portfolio since it should also provide protection against lower bond prices and higher interest rates (see June 12 Trade of the Day). 

Inverse and leveraged funds use complex investment strategies and carry unique risks. They are not suitable for all investors. Please check with your brokerage for the ability to trade leveraged ETFs since many have prohibited them. The annual expense ratio of TMV is 0.98%.

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