Skip to Main Content
  • Search by ticker
  • Sign up for emails
  • Contact Us
  • 866-476-7523
xchange logo

Treasuries – A Temporary Reprieve?

November 20, 2023
"The Fed" in large letters sitting atop four marble pillars

Editor's note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.

The Federal Reserve opted to leave interest rates unchanged after their latest meeting. At the press conference that followed, Fed Chair Powell said the central bank would remain data dependent, and left the door open to further rate hikes if needed. But now, it seems that the prevailing sentiment amongst monetary policymakers is that rates will stay “higher for longer.” Could this be the new “transitory inflation?” And if so, what might it mean for Treasury markets?

Is There Relief on the Inflation Front?

Higher inflation rates have a tendency to push bond prices lower. This is due to general correlation between interest rates and inflation rates. After a historic selloff in bond markets over the past couple years, we’ve seen inflation data come down significantly from the peak in June 2022, when the annual Consumer Price Index (CPI)* print came in at 9.1% year-over-year.

However, in recent months, we’ve seen inflation data come in above estimates, which in theory could be bearish for bond markets. That trend was broken during the October 2023 CPI report, which showed softer inflation during the month. Traders will need to keep a close watch on the November 2023 CPI report, which is set to be released on December 12. If the report shows another hotter-than-expected inflation print, it could lead to another uptick in interest rates.

Traders seeking to trade the bearish side of the Treasury market may find an opportunity with Direxion’s Daily 20+ Year Treasury Bear 3X Shares (Ticker: TMV), which seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the performance of the ICE U.S. Treasury 20+ Year Bond Index*.

Below is a daily chart of TMV as of November 10, 2023.

Daily chart of TMV as of November 10, 2023

Source: TradingView.com

Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For the most recent month-end performance go to Direxion.com/etfs. For standardized performance click here.

Could the Job Market Do the Trick?

One of the Fed’s methods to curb inflationary pressure concerns the demand side of the price discovery mechanism. By raising interest rates, the Fed is trying to slow the rate of consumption, and disincentivize borrowing.

Typically, this leads to an uptick in unemployment. Yet, since the Fed began raising rates in March 2022, the labor market has remained resilient, at least until the most recent unemployment report from October, which showed significantly less job growth than expected.

If this is the first sign of labor markets weakening, then it could bode well for Treasury markets, as they tend to rally when economic growth slows. The next unemployment report is set to be released on December 8, and if it shows further weakness, Treasury markets could see a nice rally.

Traders that deem the Treasury market to be oversold in the near-term and due for a bounce may find interest in Direxion’s Daily 20+ Year Treasury Bull 3X Shares (Ticker: TMF), which seeks daily investment results, before fees and expenses, of 300% of the performance of the ICE U.S. Treasury 20+ Year Bond Index.

Below is a daily chart of TMF as of November 10, 2023.

Daily chart of TMF as of November 10, 2023

Source: TradingView.com

Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For the most recent month-end performance go to Direxion.com/etfs. For standardized performance click here.

Alternative Capital Market Opportunities

Traders looking for alternative means to speculate in capital markets may also consider Direxion’s Daily 7-10 Year Treasury Bull 3X Shares (Ticker: TYD), and Daily 7-10 Year Treasury Bear 3X Shares (Ticker: TYO), which seek daily investment results, before fees and expenses, of 300%, or 300% of the inverse (or opposite), respectively, of the performance of the ICE U.S. Treasury 7-10 Year Bond Index*.

*Definitions and Index Descriptions

The ICE U.S. Treasury 20+ Year Bond Index (IDCOT20TR) is a market value weighted index that includes publicly issued U.S. Treasury securities that have a remaining maturity of greater than 20 years. Eligible securities must be fixed rate, denominated in U.S. dollars, and have $300 million or more of outstanding face value, excluding amounts held by the Federal Reserve. Securities excluded from the Index are inflation-linked securities, Treasury bills, cash management bills, any government agency debt issued with or without a government guarantee and zero-coupon issues that have been stripped from coupon-paying bonds.

The ICE U.S. Treasury 7-10 Year Bond Index (IDCOT7TR) is a market value weighted index that includes publicly issued U.S. Treasury securities that have a remaining maturity of greater than seven years and less than or equal to ten years. Eligible securities must be fixed rate, denominated in U.S. dollars, and have $300 million or more of outstanding face value, excluding amounts held by the Federal Reserve. Securities excluded from the Index are inflation-linked securities, Treasury bills, cash management bills, any government agency debt issued with or without a government guarantee and zero-coupon issues that have been stripped from coupon-paying bonds.

One cannot directly invest in an index.

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at www.direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.

Leveraged and Inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.

Neither Rafferty nor the Direxion Daily 7-10 Year Treasury Bull 3X Shares, Direxion Daily 7-10 Year Treasury Bear 3X Shares, Direxion Daily 20+ Year Treasury Bull 3X Shares or Direxion Daily 20+ Year Treasury Bear 3X Shares (the “Financial Products”) are sponsored, endorsed, sold or promoted by Interactive Data Pricing and Reference Data, LLC or its affiliates (“Vendor”). Vendor makes no representation or warranty regarding the advisability of investing in securities generally, in the Financial Products particularly, or the ability of the ICE U.S. Treasury 7-10 Year Bond Index or ICE U.S. Treasury 20+ Year Bond Index to track general financial market performance. VENDOR MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE ICE INDICES OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL VENDOR HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Aggressive Investment Techniques Risk, Counterparty Risk, Intra-Day Investment Risk, Other Investment Companies (including ETFs) Risk, Cash Transaction Risk, Tax Risk, and risks specific to U.S. Government Securities. Additional risks include, for the Direxion Daily 20+ Year Treasury Bull 3X Shares, Daily Index Correlation Risk, and for the Direxion Daily 20+ Year Treasury Bear 3X Shares, Daily Inverse Index Correlation Risk, and risks related to Shorting. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed only as to the timely payment of interest and principal when held to maturity. Additional risks include, for the Direxion Daily 7-10 Year Treasury Bull 3X Shares, Daily Index Correlation Risk, and for the Direxion Daily 7-10 Year Treasury Bear 3X Shares, Daily Inverse Index Correlation Risk, and risks related to Shorting. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed only as to the timely payment of interest and principal when held to maturity. The market prices for such securities are not guaranteed and will fluctuate. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.

Distributor: Foreside Fund Services, LLC.