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.[1]
The Idea
In simplified terms, TMF is a type of security called a leveraged ETF, which provides 3x magnified exposure to US 20+ years treasury bond prices. Rising bond prices will lead to falling bond yields, thus this product is effectively betting for falling US Federal Funds Rate which is explained in detail in "Macroeconomic effects."
Current Holdings
| Security Description | Type of Security | Holding Percentage | |
|---|---|---|---|
| TLT - IShares Tr Barclays 20+ year Treasury ETF | ETF | 65.02 | |
| IShares 20+ year Treasury Bond ETF Swap | Swap | 33.10 | |
| Dreyfus Treasury Securities Cash Management |
Leveraged ETFs
Leveraged ETFs (exchange traded funds) are products which utilises financial derivatives such as option contracts, to amplify returns to a particular index. [2] Leveraged ETFs provide both options to long or short for investors to profit from a bearish or a bullish market through inverse leveraged ETFs.
Investment Thesis
Strategic Play
Bonds
| Terms | Definition |
|---|---|
| Face value | Price which the bond issuer pays back at the time of the bond's maturity |
| Bond price | |
| Bond yield | |
| Coupon rate | |
| Yield to maturity |
Bond price vs Bond yield
Macroeconomic effects
Interst Rates (Fed Funds Rate)
When interest rates rise, determined by the Federal Reserve for the U.S., bonds with the fixed coupon rate becomes unattractive and the bond price decreases.[3] When the bond prices decrease and the coupon rate remains constant, bond yield therefore increases. Therefore the bond price and the bond yield are inversely proportional.
Conversely, bond yield and interest rates are correlated.
Therefore TMF is an instrument to maximise the profits in US interest rate cuts.
Recession
Recession signals
Inflation
Inflation / interest rate dependence
Monetary Policy
Quantitative Tightening, FED reducing balance sheet by allowing existing bonds to mature.
US Debt
Historical Performance
Risk assessment
TMF, being a 3x leveraged ETF, comes with a substantial risk as the product is leveraged with derivatives to achieve higher returns. These derivatives include future contracts, swaps and options with high volatility. Leveraged ETFs provide daily return of the desired multiple, and the return resets daily. Compounding returns can bring significant losses or gains.
With the considerable risk, TMF is not appropriate for long term and mostly used for trading.[4]