Direxion daily 20 year treasury bull 3x

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.

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 deterioriatng economy by betting on long term Treasury yields to fall, mainly caused by the US interest rate cuts.

Current Holdings

TMF - Portfolio (as of 20/07/2023)

Security Description	Type of Security	Holding Percentage
TLT - IShares Tr Barclays 20+ year Treasury ETF	ETF	65.02
Goldman Sachs FS Treasury Instruments Instl	Swap	11.70
IShares 20+ year Treasury Bond ETF Swap	Short Swap	-3.83 (short)

Leveraged ETFs

Leveraged ETFs (exchange traded funds) are products which utilises financial derivatives such as future contracts, options and swaps in order to deliver the desired return of a particular index.

Due to the high risk, TMF is typically used by traders to profit from the index's short term trends or through technical analysis. Therefore leveraged ETFs have the potential to provide significant gains as well as losses, and provide both long and short exposure to a certain index.

Leveraged ETFs provide both options to long or short for investors to profit from a bearish or a bullish market through inverse leveraged ETFs.

US Long Term Treasury Bonds

Key terms

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	Annual
Yield to maturity

Macroeconomics

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. 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 (QT) refers to reducing the liquidity out of the financial market. This is implemented by the US Federal Reserve shrinking its balance sheet by either selling the US Treasury bonds or letting the bonds on their balance sheet mature without reissuance. Quantitative tightening increases the amount of bonds available for investors which forces the bond yields higher in order to attract investors. This results in lower bond prices, and has a negative impact on the performance of TMF.

Quantitative Easing (QE) is the reverse of quantitative tightening. This is commonly referred as "money printing", where the government issue bonds and the Federal Reserve buys those issued bonds. This increases the liquidity in the financial market and naturally leads to currency devaluation. Implementing QE is effectively issuing more debt, thus the Federal Reserve lowers the interest rate to minimise the cost of debt as much as possible. Lowering interest rates lead to higher bond prices, therefore QE has a positive impact on TMF 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.