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Direxion's leveraged Treasury ETFs offer a two-horizon Fed trade

The 3x Treasury ETFs let traders bet on Fed direction, but the bigger question is how long to hold.

At a glance

  1. Earlier, the war in Iran had pushed expectations the other way, toward tightening.
  2. Reading the Fed under new Chairman Kevin Warsh has been hard, ETF Trends notes.
  3. ETF Trends sees TYO as the near-term winner if the Fed holds its restrictive line, and TYD as the 2027 trade if Gapen is right.

July's jobs report showed a loss of 23,000 positions and cracked the door on Federal Reserve rate cuts. Earlier, the war in Iran had pushed expectations the other way, toward tightening. For a leveraged view of whichever way the Fed moves, traders have a pair of Direxion funds that turned 17 in April: TYD and TYO. They deliver 300% daily exposure to the ICE U.S. Treasury 7-10 Year Bond Index, the first long and the second short. ETF Trends calls them pioneers in the geared bond ETF space.

Reading the Fed under new Chairman Kevin Warsh has been hard, ETF Trends notes. Street Stats data cited by the outlet put the effective fed funds rate at 3.63%. Futures markets see a gradual climb to about 3.8% by November. The implied path reaches 4.1% by August 2027. It holds near that level through 2030. That points to years of restrictive policy, a backdrop favoring the bearish TYO. The September 15-16 FOMC meeting is approaching. Morgan Stanley Research's Michael Gapen, though, tells ETF Trends he expects two rate cuts in 2027 as inflation normalizes.

ETF Trends sees TYO as the near-term winner if the Fed holds its restrictive line, and TYD as the 2027 trade if Gapen is right. The catch is that both funds reset daily. Hold a 3x Treasury ETF across quarters and compounding decay erodes the return; the upside matches the index only for trades that open and close within days. That makes these timing instruments, not positions. The meaningful choice comes down to how long the trade is expected to last.

Reported by the Active desk from ETF Trends. Published . Corrections

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