This leveraged ETF shows that TIPS are not immune to bond market pain

While Treasury Inflation-Protected Securities (TIPS) can help provide some degree of security in a market environment like today where rates are rising, they are not completely immune to bond market woes.

Bonds trailed equities lower as inflation fears continued to spread through financial markets. While selling pressure has eased somewhat in recent trading sessions, bond bears could still find opportunities if a hawkish Federal Reserve continues to hike rates as expected through 2022.

Last week’s inflation report “showed that overall, year-on-year inflation slowed slightly to 8.3% in April from 8.5% in March,” as reported by the the wall street journal. “This marked a long-awaited turning point, as prices no longer compare to the deeply depressed levels of the start of the Covid-19 pandemic.”

“Bond investors, however, were more concerned about the monthly pace of price increases, which they see as a better indicator of the direction of inflation,” the WSJ added. “Removing food and energy prices also removes some of the noise in the data, giving a better picture of underlying inflationary pressures.”

Meanwhile, according to the Bloomberg US TIPS Index (Series-L), TIPS fell like the rest of the bond markets in Q1 and rallied in Q2. The index itself is down about 7% for the year.

2 options for TIPS Weakness or Strength

Direxion Investments has a few options to play the strength or weakness of TIPS. The two ETFs are just one part of a suite of leveraged ETF products that Direxion offers to play both sides of the trade.

For traders who err on the side of optimism, there is the Direxion Daily TIPS Bull 2X Stock (TIPL)and for the drop, there is the Direxion Daily TIPS Bear 2X Stocks (TIPD). Both ETFs seek to achieve 200%, or 200% of the inverse, of the daily performance of the Solactive TIPS ETF, which provides exposure to U.S. Treasury Inflation Protected Bonds, commonly referred to as “TIPS”, according to a statement from the solidifier.

TIPD table

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