If Realized, Inflation Optimism Could Boost This ETF

Make no bones about it, because Federal Reserve Chair Kevin Warsh isn’t: Inflation is too high. The Fed leader confirmed as much following the central bank’s 25-basis-point interest rate increase on Wednesday, September 16. Warsh is making it clear that fighting inflation is his top priority. If rate hikes must be used to accomplish that objective, the Fed will go down that path. This aggressive stance has clearly been a drag on the bond market, with 10- and 30-year Treasury yields hovering near two-decade highs. However, it’s been a boon for the Direxion Daily 7-10 Year Treasury Bear 3X Shares (TYO) , a leveraged ETF that’s up 6.45% over the past month. Or conversely, if cooling inflation ends up putting a lid on bond yields, TYO’s bullish counterpart, the Direxion Daily 7-10 Year Treasury Bull 3X Shares (TYD) , could be the way for risk-aware short-term traders to play the bond market. Indeed, there is a case for monitoring TYD because some experts believe that inflation is poised to trend down or close to the Fed’s target range.

To be sure, TYD isn’t your run-of-the-mill boring bond ETF. This fund attempts to deliver daily returns corresponding to 300% of the daily performance of the ICE U.S. Treasury 7-10 Year Bond Index. So this definitely isn’t a buy-and-hold instrument on par with a traditional Treasury ETF. That said, the Direxion ETF may be appealing to aggressive traders should inflation data eventually prove cooperative with the Fed’s aims. “We expect inflation to drop to 2.4% in 2027 and an average of 2.0% over 2028-30, according to our latest forecast. That decrease will be a key factor for the Federal Reserve to resume cutting interest rates , after raising them on Sept. 16,” noted Morningstar’s Preston Caldwell. Resolving the Iran conflict would significantly ease inflation, as surging oil prices have driven up consumer costs across the board. Caldwell also pointed out that the waning effects of trade tariffs could also help to ease inflation. Should that happen, then it’s also possible that bond yields fall and perhaps boost TYD along the way. As Caldwell added, housing inflation is another data point that prospective YTD investors should consider as well. “The housing component of the main price indexes (CPI and PCE), representing the average rent paid by all tenants, responds with a substantial lag with respect to the market rate,”Caldwell said. “Because of this lag and the runup in market rents over 2021-22, official housing inflation was still high in 2024 at 5.40%. It decelerated to an average of 3.90% in 2025, and we expect it to drop further to 3.2% in 2026 and 3.0% in 2027.”