Signs of cooling inflation are bringing bond bulls back as the Federal Reserve recently kept interest rates unchanged yet again. Bond bulls, however, are betting on rate cuts propping up prices as the second half of 2024 may see the first of said cuts.
In the meantime, the Fed is maintaining its data observations and cooling prices during the month of May could give them more guidance on interest rate policy.
“A key measure of underlying US inflation stepped down for a second month in May, a pleasant surprise for Federal Reserve officials looking for signs that they can start to lower interest rates,” Bloomberg reported.
The 2% target inflation rate could be getting closer if cooling inflation persists. Higher-for-longer interest rates have kept bond prices in check although offering attractive yields in the current market environment.
“The so-called core consumer price index — which excludes food and energy costs — climbed 0.2% from April, Bureau of Labor Statistics figures showed,” the report added. “The year-over-year measure rose 3.4%, cooling to the slowest pace in more than three years, according to data out Wednesday.”
As Fed interest rate policy continues to move the bond markets, traders can capitalize on that data sensitivity by getting exposure to leveraged ETFs that track Treasuries. To maintain flexibility, inverse ETFs can offer strategic tools for a dynamic bond market.
4 Ways to Trade Fluctuating Treasuries
Direxion Investments offers four ways to trade Treasuries irrespective of whether they head up or down. This gives traders the flexibility to essentially play both sides of the market.
When bond prices rise, bullish options include the Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF) and the Direxion Daily 7-10 Year Treasury Bull 3X Shares (TYD). Both of these funds offer triple leverage, giving traders the opportunity to maximize their profits, but only seasoned traders should consider these funds. TMF seeks daily investment results of 300% of the daily performance of the ICE U.S. Treasury 20+ Year Bond Index. TYD seeks 300% of the daily performance of the ICE U.S. Treasury 7-10 Year Bond Index.
The Fed backing off interest rate hikes is never a 100% certainty. But should they pivot and bond prices fall, traders can also take the other side with inverse ETFs. Bearish bond traders can use the Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV) and the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO). Both funds take the other side of TMF and TYD, which makes them ideal when bond prices take a dip.
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