Friday, March 17, 2017

Is All Bond Performance Created Equal?

Below is a chart depicting the performance of the Direxion Daily 7-10 Year Treasury Bear 3x ETF(TYO). Yes it's an extremely long name. Basically the ETF is designed to move 3 times the daily move in 7-10 year US Treasuries for those looking to be "short" government debt. It's as if you actually sold bonds(without owning them), but bought shares of the ETF, to profit from the rise in interest rates as it knocks down the value of older lower yielding debt.

I've also added the actual percentage change in yield for the 7 and 10 year Treasuries the fund owns. As you can see since mid-October the yields on 7  & 10 year debt have increased dramatically by 51% and 47% respectively. Yet the percentage change in the ETF has only increased 14.70%.

Lesson: Know what you own and why you own it!

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