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Loving Leveraged Bond ETFs

Yields on 10-year Treasurys are tumbling this year, but over the five trading sessions concluding Monday, that same yield is higher by nearly 7.7 percent. Five days does not undo more than six months of good work by fixed income exchange-traded funds, one of this year's hottest asset classes, but this could be an opportunity for nimble traders to play a quick rebound in U.S. government debt or a longer retreat with leveraged ETFs.

Traders Express Interest

Data indicate some traders have already been keeping tabs on the Direxion Daily 7-10 Year Treasury Bull 3X Shares (NYSE: TYD) and the Direxion Daily 7-10 Year Treasury Bear 3X Shares (NYSE: TYO). As their names imply, TYD and TYO are triple-leveraged plays on mid-duration Treasurys. TYD attempts to deliver triple the daily performance of the ICE U.S. Treasury 7-10 Year Bond Index while TYO seeks to deliver triple the daily inverse returns of that benchmark.

Related Link: Call On Consistency With This Dividend ETF

Volume data indicate some traders are comfortable betting on more upside for 7-10 Treasurys while others are comfortable making bearish wagers. For the five-day period ended July 15, TYO's average volume was more than 105 percent above the trailing 20-day average, according to Direxion data. Likewise, TYD's volume over those five days was almost 86 percent higher than its trailing 20-day average. Only one of Direxion's leveraged ETFs saw a greater volume spike than TYO over those five days and only two, including TYO, saw great increases in turnover than TYD.

An ETF Idea

If the charts prove accurate, the Direxion Daily 20 Year Plus Treasury Bear (NYSE: TMV) could also be a fine near-term idea. Longer-date Treasurys have been soaring this year as the Federal Reserve continually passes on boosting interest rates, but these bonds appear vulnerable to near-term retrenchment.

“TLT is attempting to breakout, as it is kissing the underside of channel resistance, for the 4th time in the last decade. As it is kissing resistance, weekly momentum is now reaching lofty levels,” noted Chris Kimble of Kimble Charting Solutions. “No doubt about it, from a Power of the Pattern perspective, TLT finds itself at a very interesting price point at this time.”

If TLT can keep soaring, TMV would logically falter, but the Direxion Daily 20+ Year Treasury Bull 3X Shares (NYSE: TMF) would soar. Direxion data indicate recent volume increases, though modest, for TMV while volume has been declining slightly in TMF.

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