This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Bear, Bull Treasury ETFs Require Caution

The following commentary about new bear and bull leveraged Treasury ETFs is from Dave Fry, founder and publisher of ETF Digest and author of the Dave's Daily column on ETFs.

Leveraged ETF provider Direxion recently issued bull and bear funds to correspond with the daily price changes in two-year U.S. Treasury notes.

The two new leveraged ETFs are the Daily 2-year Treasury Bull 3x Shares (TWOL) and the Daily 2-year Treasury Bear 3x Shares (TWOZ).

These funds represent an important development, particularly for investors who believe interest rates could rise or fall dramatically and wish to prosper by sharp changes in the yield curve. For example, in a rising interest rate environment the yield curve may invert whereby short-term interest rates may exceed long-term rates. A steepening yield curve would produce the opposite result.

Short-term Treasury securities yields may change dramatically but due to their short duration, prices would change less than on securities with a longer duration such as those bonds with maturities of 10-30 years.

Therefore, if one wished to profit by a steep rise or fall in short-term interest rates the leverage afforded by these new leveraged issues offers such an opportunity. Alternatives would only include futures and/or options markets where leverage may be more than the leverage on these ETFs.

Given their more intensive trading nature fees on these issues are much higher (.95%) than conventional non-leveraged issues.

As with other leveraged issues with daily resets, tracking beyond a few days may not match the index or investor expectations.

Another fact for investors is the newness of these issues and a lack of trading volume. This in itself can lead to poor executions, as investors should wait for volume and liquidity to build. Should that happen and the yield curve change, especially on the short-end of the curve, these securities may provide an effective hedge for those seeking interest rate protection and speculative opportunities.

We advise investors use caution and a disciplined approach when utilizing these securities.

Disclosure: No position in these securities.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
TWOL $0.00 0.00%
TWOZ $0.00 0.00%
AAPL $125.42 0.72%
FB $85.76 -0.04%
GOOG $520.51 -0.19%

Markets

DOW 17,619.51 +23.16 0.13%
S&P 500 2,063.12 +5.48 0.27%
NASDAQ 4,986.8670 +28.3990 0.57%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs