Editing Direxion daily 20 year treasury bull 3x
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{{Infobox company | {{Infobox company | ||
| name = Direxion 20 year+ Treasury Bull 3x ETF | | name = Direxion 20 year+ Treasury Bull 3x ETF | ||
| logo = Direxion.svg | |||
| trade_name = TMF | | trade_name = TMF | ||
| type = 3x Leveraged ETF | | type = 3x Leveraged ETF | ||
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(as of 22/07/2022)}} | (as of 22/07/2022)}} | ||
[[File:2023-07-20 152553.png|thumb|Direxion ETF<ref>https://www.direxion.com/product/daily-20-year-treasury-bull-bear-3x-etfs</ref>]] | [[File:2023-07-20 152553.png|thumb|Direxion ETF<ref>https://www.direxion.com/product/daily-20-year-treasury-bull-bear-3x-etfs</ref>]] | ||
The Direxion Daily 20+ Year Treasury Bull & Bear 3X Shares seek daily investment results, before fees and expenses, of 300%, or 300% of the inverse (or opposite), of the performance of the ICE U.S. Treasury 20+ Year Bond Index.<ref>https://www.direxion.com/product/daily-20-year-treasury-bull-bear-3x-etfs</ref> The purpose of this product is to provide exposure to the rising Treasury bond prices to profit during a recessionary period, where tightened credit market becomes unsustainable and forces the federal funds rate lower. | |||
The Direxion Daily 20+ Year Treasury Bull & Bear 3X Shares seek daily investment results, before fees and expenses, of 300%, or 300% of the inverse (or opposite), of the performance of the ICE U.S. Treasury 20+ Year Bond Index.<ref>https://www.direxion.com/product/daily-20-year-treasury-bull-bear-3x-etfs</ref> The purpose of this product is to provide exposure to the rising Treasury bond prices to profit during a recessionary period, where tightened credit market becomes unsustainable and forces the federal funds | |||
== The idea == | == The idea == | ||
TMF offers a powerful instrument for investors with a bullish outlook on US 20+ years Treasury bonds. In a form of leveraged ETF, TMF allow investors to take advantage of the deterioriatng economy by betting on long term Treasury yields to fall, mainly caused by the US interest rate cuts in an adverse | TMF offers a powerful instrument for investors with a bullish outlook on US 20+ years Treasury bonds. In a form of leveraged ETF, TMF allow investors to take advantage of the deterioriatng economy by betting on long term Treasury yields to fall, mainly caused by the US interest rate cuts in an adverse scenario.<ref>https://etfdb.com/etf/TMF/#etf-ticker-profile</ref> | ||
{| class="wikitable" | {| class="wikitable" | ||
|+TMF - main financials<ref>https://www.direxion.com/product/daily-20-year-treasury-bull-bear-3x-etfs</ref> | |+TMF - main financials<ref>https://www.direxion.com/product/daily-20-year-treasury-bull-bear-3x-etfs</ref> | ||
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== Current Holdings == | == Current Holdings == | ||
{| class="wikitable" | {| class="wikitable" | ||
|+TMF - Portfolio (as of 20/07/2023)[[File:10.jpg|left|thumb| | |+TMF - Portfolio (as of 20/07/2023)[[File:10.jpg|left|thumb|434x434px|TMF Holdings<ref>https://www.direxion.com/product/daily-20-year-treasury-bull-bear-3x-etfs</ref>]] | ||
!Security Description | !Security Description | ||
!Ticker | !Ticker | ||
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| | | | ||
|Short Swap | |Short Swap | ||
| | | -3.83 (short) | ||
|- | |- | ||
|Cash and cash equivalent | |Cash and cash equivalent | ||
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|19.45 | |19.45 | ||
|} | |} | ||
== Ownership == | == Ownership == | ||
Main institutional ETF and options ownership | Main institutional ETF and options ownership | ||
{| class="wikitable" | {| class="wikitable" | ||
|+Main institutional ownership (as disclosed in their latest 13F filing | |+Main institutional ownership (as disclosed in their latest 13F filing) | ||
!Investor | !Investor | ||
!Shares | !Shares | ||
!Options (if applicable) | !Options (if applicable) | ||
|- | |- | ||
|Barclays Plc | |Barclays Plc | ||
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US Treasury Bonds are debt securities issued by the US government in exchange of a fixed annual interest. This type of sovereign debt is insured by the US government thus commonly referred as the risk free investment. Buying a Treasury bond is effectively lending money to the US government in exchange of a stated annual interest. | US Treasury Bonds are debt securities issued by the US government in exchange of a fixed annual interest. This type of sovereign debt is insured by the US government thus commonly referred as the risk free investment. Buying a Treasury bond is effectively lending money to the US government in exchange of a stated annual interest. | ||
Bond prices of the US Treasury Bonds are influenced by many factors, including monetary policies, interest rates, economic growth and many more which are explained in Macroeconomics section.<ref>[https://www.investopedia.com/ask/answers/062315/which-economic-factors-impact-treasury-yields.asp#:~:text=Interest%20rates%2C%20inflation%2C%20and%20economic%20growth%20are%20among%20the%20biggest,the%20direction%20of%20Treasury%20yields. https://www.investopedia.com/ask/answers/062315/which-economic-factors-impact-treasury-yields.asp#:~:text=Interest%20rates%2C%20inflation%2C%20and%20economic%20growth%20are%20among%20the%20biggest,the%20direction%20of%20Treasury%20yields.]</ref> | Bond prices of the US Treasury Bonds are influenced by many factors, including monetary policies, interest rates, economic growth and many more which are explained in Macroeconomics section.<ref>[https://www.investopedia.com/ask/answers/062315/which-economic-factors-impact-treasury-yields.asp#:~:text=Interest%20rates%2C%20inflation%2C%20and%20economic%20growth%20are%20among%20the%20biggest,the%20direction%20of%20Treasury%20yields. https://www.investopedia.com/ask/answers/062315/which-economic-factors-impact-treasury-yields.asp#:~:text=Interest%20rates%2C%20inflation%2C%20and%20economic%20growth%20are%20among%20the%20biggest,the%20direction%20of%20Treasury%20yields.]</ref> | ||
=== ICE U.S. Treasury 20+ Year Bond Index (IDCOT20) === | === ICE U.S. Treasury 20+ Year Bond Index (IDCOT20) === | ||
This index illustrates the performance of US dollar fixed rate securities with maturity date longer than twenty | This index illustrates the performance of US dollar fixed rate securities with maturity date longer than twenty years.<ref>https://www.theice.com/publicdocs/data/ICE-Indices_20+yrs.pdf</ref> TMF provides 300% daily returns of IDCOT20. | ||
{| class="wikitable" | {| class="wikitable" | ||
|+Bonds Key terms<ref name=":1" /> | |+Bonds Key terms<ref name=":1" /> | ||
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==== Inverted Yield Curve ==== | ==== Inverted Yield Curve ==== | ||
[[File:T210.jpg|2 year treasury yield minus 10 year treasury yield data<ref>https://fred.stlouisfed.org/series/T10Y2Y</ref>]] | [[File:T210.jpg|thumb|464x464px|2 year treasury yield minus 10 year treasury yield data<ref>https://fred.stlouisfed.org/series/T10Y2Y</ref>]] | ||
Treasury bonds with longer maturity date typically has a higher yield, as it has increased economic uncertainty and devaluation with rising annual inflation. However when shorter bonds have a higher yield than long term bonds, it is described as a yield curve inversion. This inversion is most commonly measured by 2 year yield minus 10 year yield. When this metric dips below 0 basis point, it accurately predicted every recession in the last half century thus regarded as an accurate indicator of a recession. Historically it required 6 to 18 months since the inversion for the recession to occur. It's recognised as a reliable recession indicator as it illustrates the shortage of money supply in the near term, which indicate the economic turmoil. | Treasury bonds with longer maturity date typically has a higher yield, as it has increased economic uncertainty and devaluation with rising annual inflation. However when shorter bonds have a higher yield than long term bonds, it is described as a yield curve inversion. This inversion is most commonly measured by 2 year yield minus 10 year yield. When this metric dips below 0 basis point, it accurately predicted every recession in the last half century thus regarded as an accurate indicator of a recession. Historically it required 6 to 18 months since the inversion for the recession to occur. It's recognised as a reliable recession indicator as it illustrates the shortage of money supply in the near term, which indicate the economic turmoil. | ||
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=== Inflation === | === Inflation === | ||
Increasing inflation diminishes the value of bond's future cash flows. As occurred in 2022, if a bond has a coupon rate of 3% and inflation rate (Consumer Price Index) is at 9%, real yield of that particular bond is -6%. This again is correlated to the Federal Reserve's monetary policy as the interest rates will rise in order to bring down inflation. Therefore higher inflation leads to higher interest rates, higher yields will be demanded by investors which brings to bond prices down. | Increasing inflation diminishes the value of bond's future cash flows. As occurred in 2022, if a bond has a coupon rate of 3% and inflation rate (Consumer Price Index) is at 9%, real yield of that particular bond is -6%. This again is correlated to the Federal Reserve's monetary policy as the interest rates will rise in order to bring down inflation. Therefore higher inflation leads to higher interest rates, higher yields will be demanded by investors which brings to bond prices down. | ||
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=== Credit Card Debt === | === Credit Card Debt === | ||
US credit card debt is at an all time high at $993B as of 5th July 2023.<ref>https://www.foxbusiness.com/economy/credit-card-debt-rising-double-edged-sword-economy</ref> Delinquency rate on credit card loans have been increasing for the sixth consecutive quarter, nearing the pre-pandemic level at 2.43% at Q1 2023.<ref>https://fred.stlouisfed.org/series/DRCCLACBS</ref> Rising debt and its delinquencies will most likely lead to increased default rates. Potential economic hardship may trigger a recession which will be advantageous to TMF. Rising interest rates on the existing debt will only worsen this debt crisis. | US credit card debt is at an all time high at $993B as of 5th July 2023.<ref>https://www.foxbusiness.com/economy/credit-card-debt-rising-double-edged-sword-economy</ref> Delinquency rate on credit card loans have been increasing for the sixth consecutive quarter, nearing the pre-pandemic level at 2.43% at Q1 2023.<ref>https://fred.stlouisfed.org/series/DRCCLACBS</ref> Rising debt and its delinquencies will most likely lead to increased default rates. Potential economic hardship may trigger a recession which will be advantageous to TMF. Rising interest rates on the existing debt will only worsen this debt crisis. | ||
[[File:Delinquency1.jpg|left|thumb|482x482px|credit card debt<ref>https://fred.stlouisfed.org/series/CCLACBW027SBOG</ref>, delinquency rates<ref>https://fred.stlouisfed.org/series/DRCCLACBS</ref>]] | |||
The upward trend in delinquency rates on credit card debt typically indicate the beginning of a recession, which was evident in 2000 dot-com crash, 2008 financial crisis and 2020 Covid pandemic. Rapid decrease in delinquency rates after the start of a recession was due to the financial aid or a "bail-out" by the federal reserve by implementing QE and rate cuts to revive the economy. Another upward trend in delinquency rates can be observed from 2021 which may signal the start of a recessionary period in the near future. | |||
[[File:Debt delinquency11.jpg|left|thumb|481x481px|credit card debt<ref>https://fred.stlouisfed.org/series/CCLACBW027SBOG</ref>personal savings rate<ref>https://fred.stlouisfed.org/series/PSAVERT</ref>]] | |||
US personal savings rate is hovering near the lowest level, with the highest debt level and rising delinquency rates while consumer spending remains resilient. This raises concerns and risks in the US economy as the ability to pay back the loans remains questionable. Rising delinquency rates typically leads to rising default rates on those loans, leading to a struggling economy which has a positive effect on the performance of TMF. | US personal savings rate is hovering near the lowest level, with the highest debt level and rising delinquency rates while consumer spending remains resilient. This raises concerns and risks in the US economy as the ability to pay back the loans remains questionable. Rising delinquency rates typically leads to rising default rates on those loans, leading to a struggling economy which has a positive effect on the performance of TMF. | ||
=== Commercial Real Estate === | === Commercial Real Estate === | ||
[[File:Skycrapers-of-Commercial-real-estate.jpg|thumb| | [[File:Skycrapers-of-Commercial-real-estate.jpg|thumb|office cre buildings<ref>https://www.adventuresincre.com/careers-in-real-estate/</ref>]] | ||
Small businesses are in the epicentre of the economic damage from tightened monetary policy. Small business rent delinquency rates have reached 40% in the United States in June, equalling April's record data.<ref>https://thehill.com/business/4073250-small-businesses-struggling-to-make-rent-report/</ref> Businesses struggling to pay rent may have to reduce and minimise their expenses which are evident in mass layoffs in the economy.<ref>https://www.businessinsider.com/layoffs-sweeping-the-us-these-are-the-companies-making-cuts-2023</ref> | Small businesses are in the epicentre of the economic damage from tightened monetary policy. Small business rent delinquency rates have reached 40% in the United States in June, equalling April's record data.<ref>https://thehill.com/business/4073250-small-businesses-struggling-to-make-rent-report/</ref> Businesses struggling to pay rent may have to reduce and minimise their expenses which are evident in mass layoffs in the economy.<ref>https://www.businessinsider.com/layoffs-sweeping-the-us-these-are-the-companies-making-cuts-2023</ref> | ||
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== Historical Performance == | == Historical Performance == | ||
[[File:Tmf graph.jpg|TMF<ref>https://finance.yahoo.com/quote/%5ETYX/history?period1=1370044800&period2=1689984000&interval=1mo&filter=history&frequency=1mo&includeAdjustedClose=true</ref>Interest rates, 30 year treasury yield<ref>https://www.direxion.com/product/daily-20-year-treasury-bull-bear-3x-etfs</ref>|none]] | [[File:Tmf graph.jpg|thumb|833x833px|TMF<ref>https://finance.yahoo.com/quote/%5ETYX/history?period1=1370044800&period2=1689984000&interval=1mo&filter=history&frequency=1mo&includeAdjustedClose=true</ref>Interest rates, 30 year treasury yield<ref>https://www.direxion.com/product/daily-20-year-treasury-bull-bear-3x-etfs</ref>|none]] | ||
TYX indicates the treasury yield of US 30 year Treasury Bond. | TYX indicates the treasury yield of US 30 year Treasury Bond. | ||
Inverse correlation can be observed between TMF and TYX. TYX tends to be proportional to the federal funds rate whenever a drastic change in interest rates occur. Sustainability of a aggressive inflation fight and interest rate hikes remain questionable and FED | Inverse correlation can be observed between TMF and TYX. TYX tends to be proportional to the federal funds rate whenever a drastic change in interest rates occur. Sustainability of a aggressive inflation fight and interest rate hikes remain questionable and FED annuallyassesses the impact of the unsustainable economy with its annual bank stress test. | ||
=== FED Bank Stress Test 2023 === | === FED Bank Stress Test 2023 === | ||
The Federal Reserve carry out the annual bank stress test in a hypothetical severely adverse scenario to test the financial resilience of US banks to | The Federal Reserve carry out the annual bank stress test in a hypothetical severely adverse scenario to test the financial resilience of US banks to evaulate the risks and strengths. 2023 Bank Stress Test indicate in a "severely adverse" scenario, projection of the 3 month Treasury yield is expected to plummet from 4% to 0.1%, which indicate a severe recession forcing the federal reserve to decrease the fed funds rate to near zero. Near zero interest rates will decrease treausry yields and drive TMF higher. | ||
In the same scenario, commercial real estate prices are projected to decrease by up to 40%. The exposure of CRE and its loans by the banks, along with the real estate crash may contribute to bring interest rates lower. | In the same scenario, commercial real estate prices are projected to decrease by up to 40%. The exposure of CRE and its loans by the banks, along with the real estate crash may contribute to bring interest rates lower. | ||
== Risk assessment == | == Risk assessment == |