-1x and -2x Inverse Bond

-1x and -2x bond mutual funds and ETFs seek to achieve an... -1x and -2x bond mutual funds and ETFs seek to achieve an inverse multiple of the short-term returns of a fixed-income index. So, if the underlying benchmark rises 1%, a -2x mutual fund or ETF should fall by 2%. While they’re called -1x funds, that just means they use a leverage between -1x and -2x. For example, a -1.2x inverse U.S. Treasury mutual fund or ETF will aim to return -1.2 times the daily return of the U.S. Treasury bond index of a specified duration. Meanwhile, a -2x U.S. Treasury mutual fund or ETF will aim to return -2 times the daily return of the U.S. Treasury bond index of a specified duration. It’s important to note that given how often these funds are rebalanced, the effects of compounding mean that they will only achieve their targeted return on a day-to-day basis. For instance, a -3x bond fund, which seeks 3 times the inverse daily return of 10-year U.S. Treasury bond index, will almost certainly not achieve triple the inverse monthly return of the index. Over time, these types of mutual funds and ETFs decay given the rebalancing process. Just like any leveraged fixed income product, these types of securities should only be held by experienced traders on a very short-term basis. They are not appropriate for long-term, conservative-minded investors, who should instead look to invest in an unleveraged fixed income ETF or mutual fund, which simply holds traditional debt securities. Last Updated: 04/23/2024 View more View less

-1x and -2x bond mutual funds and ETFs seek to achieve an inverse multiple of the short-term returns of a fixed-income index. So, if the underlying benchmark rises 1%, a -2x mutual fund... -1x and -2x bond mutual funds and ETFs seek to achieve an inverse multiple of the short-term returns of a fixed-income index. So, if the underlying benchmark rises 1%, a -2x mutual fund or ETF should fall by 2%. While they’re called -1x funds, that just means they use a leverage between -1x and -2x. For example, a -1.2x inverse U.S. Treasury mutual fund or ETF will aim to return -1.2 times the daily return of the U.S. Treasury bond index of a specified duration. Meanwhile, a -2x U.S. Treasury mutual fund or ETF will aim to return -2 times the daily return of the U.S. Treasury bond index of a specified duration. It’s important to note that given how often these funds are rebalanced, the effects of compounding mean that they will only achieve their targeted return on a day-to-day basis. For instance, a -3x bond fund, which seeks 3 times the inverse daily return of 10-year U.S. Treasury bond index, will almost certainly not achieve triple the inverse monthly return of the index. Over time, these types of mutual funds and ETFs decay given the rebalancing process. Just like any leveraged fixed income product, these types of securities should only be held by experienced traders on a very short-term basis. They are not appropriate for long-term, conservative-minded investors, who should instead look to invest in an unleveraged fixed income ETF or mutual fund, which simply holds traditional debt securities. Last Updated: 04/23/2024 View more View less