Leveraged ETF provider Direxion recently issued bull and bear funds to correspond with the daily price changes in two-year U.S. Treasury notes.
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.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV