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]
What type of product is TMF?
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."
What are 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.
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.
| 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
When
Macroeconomic effects
Interest rate dependence
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.