4 Ways To Profit From Rising Yields With Inverse Treasury ETFs

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The U.S. Treasury market has been out of investors’ favor this year, piling up heavy losses. This is especially true as Treasury yields have been on the rise with the 10-year yield, which began 2021 at 0.930%, hit a high of 1.614% on Feb. 25, and is currently hovering around 1.55%.

Inside the Surge in Yields

Growing inflationary expectations triggered by a quicker economic rebound is pushing the yields higher. A market proxy for the anticipated annual inflation rate for the next half-decade topped 2.5% for the first time since 2008 — aided by rising oil prices.

The massive money flowing into the economy coupled with hopes of more fiscal stimulus is expected to lift inflation and in turn driving long-term yields higher. Additionally, a recent spike in commodity prices, especially oil and metals, as well as the wider reach of COVID-19 vaccinations has lifted inflationary expectations. President Joe Biden announced the availability of enough doses of virus vaccine to every American adult by the end of May.

Given that the recent data has shown some signs of economic improvement, one analyst, Goldman (GS - Free Report), expects 10-year U.S. Treasury yields to move higher to 1.9% by the end of 2021. Another analyst, TD Securities, expects yields to go higher to 2%, up from the previous forecast of 1.45%.

Further, Fed Chairman Jerome Powell has pledged to maintain its accommodative stance and said that inflation is likely to rise as economic recovers, but the increase will be temporary. The central bank will continue to buy $120 billion in Treasury and mortgage-backed securities per month, allowing inflation to move in an average range that could rise above its 2% target without triggering a rate hike.

Against such a backdrop, investors are putting their money in ETFs that bet against U.S. Treasury bonds. For them, we have highlighted four inverse or leveraged inverse ETFs that could be worth buying for huge gains in a short span.

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