1x and 2x Leveraged Bond

1x and 2x bond mutual funds and ETFs seek to achieve a... 1x and 2x bond mutual funds and ETFs seek to achieve a 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 return 2 times that amount. While they’re called 1x funds, that just means they use less than 2x leverage. For example, a 1.2x leveraged long 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. 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 fund that seeks twice the daily return of 10-year U.S. Treasury bond index will almost certainly not achieve twice the monthly return of the index. Over time, these types of mutual funds and ETFs decay given the rebalancing process. However, a partially leveraged fund, such as 1.2x or 1.5x ETF, will not decay as fast as a 2x or 3x bond fund. 1x and 2x bond mutual funds and ETF 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 unleveraged fixed income ETF or mutual fund, which simply holds traditional debt securities. Last Updated: 04/19/2024 View more View less

1x and 2x bond mutual funds and ETFs seek to achieve a multiple of the short-term returns of a fixed-income index. So, if the underlying benchmark rises 1%, a 2x mutual fund or... 1x and 2x bond mutual funds and ETFs seek to achieve a 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 return 2 times that amount. While they’re called 1x funds, that just means they use less than 2x leverage. For example, a 1.2x leveraged long 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. 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 fund that seeks twice the daily return of 10-year U.S. Treasury bond index will almost certainly not achieve twice the monthly return of the index. Over time, these types of mutual funds and ETFs decay given the rebalancing process. However, a partially leveraged fund, such as 1.2x or 1.5x ETF, will not decay as fast as a 2x or 3x bond fund. 1x and 2x bond mutual funds and ETF 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 unleveraged fixed income ETF or mutual fund, which simply holds traditional debt securities. Last Updated: 04/19/2024 View more View less