We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
U.S. Treasury yields have been on the rise this year as the Fed’s tight monetary policy offered a leg up. While most market watchers expect one more Fed rate hike in November, sticky inflation and talks of higher-for-longer rates even in 2024 pushed up long-term treasury bond yields materially in recent weeks.
However, the latest Middle East conflict between Israel and Palestine boosted the safe-haven demand and dragged down U.S. treasury bond yields, facilitating the asset’s price. Notably, bond yields and prices are inversely related. No wonder, leveraged treasury bond ETF Direxion Daily 7-10 Year Treasury Bull 3X Shares (TYD - Free Report) added about 1.4% after hours on Oct 10, 2023.
Long-term treasury bond ETF PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund (ZROZ - Free Report) , too, added 0.7% after hours on Oct 10. Meanwhile, iShares Short Treasury Bond ETF (SHV - Free Report) was up 0.01% on Oct 10 and advanced 0.03% after hours.
Safe-Haven Bid
In times of geopolitical tension, it is normal to seek a flight to safety, which is why we have been seeing the demand for Treasury bonds going up. Strikingly, the tension in the Middle East comes at a time when global bond yields are at multi-year highs due to restrictive monetary policies, and the bond market has been in shambles.
Dovish Fed Comments
If this was not enough, dovish comments from two Fed officials hinted that the recent surge in bond yields could result in the tightening of credit conditions the central bank intends to achieve. That could give policymakers a leeway to put an end to the ongoing policy tightening cycle, per some analysts.
In fact, Atlanta Fed President Raphael Bostic, said on Oct 10, that he sees current rates are high enough to get inflation back to the Fed's 2% target, as quoted on Yahoo Finance. Hence, dual tailwinds of a safe-haven bid & dovish Fed comments caused the benchmark U.S. treasury bond yields to slump to 4.66% on Oct 10 from 4.78% from the day before. The benchmark yield even hit a high of 4.81% this week and reached close to a low of 4.63% yesterday.
Historical Outperformance
The historical performance of Treasuries maturing in 10 or more years provides an intriguing case for investors right after the final interest-rate hike in a Fed policy tightening cycle, per Bloomberg. Long-term bonds have consistently outperformed shorter-dated areas in such a scenario.
On average, they returned 10% over the six-month-period bonds following the peak in the federal funds rate. Although the Federal Reserve remains watchful, market trends suggest a likely peak. The cooling inflation, which has been on a steady decline for the past year, actually supports this view.
ETFs in Focus
Against this backdrop, investors may bet on the leveraged treasury bond ETFs as long as the trend is in their favor.
Direxion Daily 7-10 Year Treasury Bull 3x Shares (TYD - Free Report) – Up 1.5% Past Week
ProShares Ultra 7-10 Year Treasury (UST - Free Report) – Up 1.1% Past Week
Bottom Line
As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing — when combined with leverage — may force these products to deviate significantly from the expected long-term performance figures.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Time to Buy Leveraged Treasury Bond ETFs?
U.S. Treasury yields have been on the rise this year as the Fed’s tight monetary policy offered a leg up. While most market watchers expect one more Fed rate hike in November, sticky inflation and talks of higher-for-longer rates even in 2024 pushed up long-term treasury bond yields materially in recent weeks.
However, the latest Middle East conflict between Israel and Palestine boosted the safe-haven demand and dragged down U.S. treasury bond yields, facilitating the asset’s price. Notably, bond yields and prices are inversely related. No wonder, leveraged treasury bond ETF Direxion Daily 7-10 Year Treasury Bull 3X Shares (TYD - Free Report) added about 1.4% after hours on Oct 10, 2023.
Long-term treasury bond ETF PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund (ZROZ - Free Report) , too, added 0.7% after hours on Oct 10. Meanwhile, iShares Short Treasury Bond ETF (SHV - Free Report) was up 0.01% on Oct 10 and advanced 0.03% after hours.
Safe-Haven Bid
In times of geopolitical tension, it is normal to seek a flight to safety, which is why we have been seeing the demand for Treasury bonds going up. Strikingly, the tension in the Middle East comes at a time when global bond yields are at multi-year highs due to restrictive monetary policies, and the bond market has been in shambles.
Dovish Fed Comments
If this was not enough, dovish comments from two Fed officials hinted that the recent surge in bond yields could result in the tightening of credit conditions the central bank intends to achieve. That could give policymakers a leeway to put an end to the ongoing policy tightening cycle, per some analysts.
In fact, Atlanta Fed President Raphael Bostic, said on Oct 10, that he sees current rates are high enough to get inflation back to the Fed's 2% target, as quoted on Yahoo Finance. Hence, dual tailwinds of a safe-haven bid & dovish Fed comments caused the benchmark U.S. treasury bond yields to slump to 4.66% on Oct 10 from 4.78% from the day before. The benchmark yield even hit a high of 4.81% this week and reached close to a low of 4.63% yesterday.
Historical Outperformance
The historical performance of Treasuries maturing in 10 or more years provides an intriguing case for investors right after the final interest-rate hike in a Fed policy tightening cycle, per Bloomberg. Long-term bonds have consistently outperformed shorter-dated areas in such a scenario.
On average, they returned 10% over the six-month-period bonds following the peak in the federal funds rate. Although the Federal Reserve remains watchful, market trends suggest a likely peak. The cooling inflation, which has been on a steady decline for the past year, actually supports this view.
ETFs in Focus
Against this backdrop, investors may bet on the leveraged treasury bond ETFs as long as the trend is in their favor.
Direxion Daily 7-10 Year Treasury Bull 3x Shares (TYD - Free Report) – Up 1.5% Past Week
ProShares Ultra 7-10 Year Treasury (UST - Free Report) – Up 1.1% Past Week
Bottom Line
As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing — when combined with leverage — may force these products to deviate significantly from the expected long-term performance figures.